Natural gas looks prime for a reversal from its selloff as price formed a double bottom pattern on its 1-hour chart. A break past the neckline around $2.350 could set off a climb that’s the same height as the chart formation.
The 100 SMA is still below the 200 SMA, though, so the path of least resistance is to the downside. In other words, resistance is more likely to hold than to break. In that case, natural gas could still retreat to the bottoms around $2.200-2.250. Then again, price has climbed above both moving averages as an early indication of bullish momentum.
Stochastic is turning lower from the overbought zone to indicate that selling pressure is returning while buyers take a break. RSI also made its way to the overbought region and is starting to head south, so price could follow suit while sellers take over.
Natural gas could enjoy a bit more support from seasonal factors as hurricane season is taking place while cooler weather conditions are expected to persist in the coming months. This brings a combination of lower supply and higher demand, which then drive prices higher.
Hurricane Sally is disrupting production in the Gulf of Mexico, which could mean lower output levels in the coming weeks. The inventory report from the Department of Energy could provide more insight on this, but it looks like traders are bracing for another reduction in stockpiles.
A surprise build, however, could signal that supply remains elevated while demand is feeble. This could usher in another leg lower for natural gas, especially if risk-off factors remain in play. Note that geopolitical risks and pandemic developments are currently keeping a lid on gains for riskier assets like commodities these days.