Natural gas is still consolidating inside its descending triangle on the hourly time frame and is currently testing support. A bearish flag seems to be forming, which suggests that a bearish break is due.
If that happens, natural gas could fall by the same height as the triangle formation, which spans around $6.500 to $7.200. The 100 SMA is below the 200 SMA to confirm that the path of least resistance is to the downside or that support is more likely to break than to hold.
Natural gas is also trading below both moving averages, so these could hold as dynamic resistance on a price rally. The 100 SMA is near the triangle top at $6.800 to add to its strength as a ceiling.
Stochastic is already indicating oversold conditions or exhaustion among sellers, so turning higher would mean that buyers are taking over. RSI has a bit more room to move south before reaching the oversold area, which means that there is some bearish pressure left in play.
Natural gas might be in for more downside if the upcoming inventory reports show a large build in stockpiles. This would confirm that cooler weather conditions are dampening demand for the cooling commodity in the meantime.
Also, the stronger dollar is currently dragging most commodities lower, as traders price in the possibility of another big Fed rate hike.
Still, natural gas fundamentals could turn bullish towards the end of the year, as the winter season ramps up purchases of heating commodities. Note that Russia is cutting off more access to its pipelines to Europe, which suggests the possibility of another supply crunch.
In turn, this could drive stockpiling activity early on, as businesses try to build up their own supply before natural gas prices pick up again.