Natural gas broke below the bottom of the short-term rising channel to signal that a downtrend is in the works. This follows through on the downtrend that has been ongoing for the past couple of months.
This also reflects the pickup in bearish momentum as price falls below the 38.2% extension and is also breaking below the 50% level currently. A test of the 61.8% level at the $2.520 mark may be in order, and stronger selling pressure could take it down to the 78.6% level at $2.474 or the full extension at $2.414.
The 100 SMA has just recently crossed above the longer-term 200 SMA, though, so the path of least resistance might still be to the upside. In other words, there’s still a chance for the climb to resume from here. Then again, natural gas has fallen below the dynamic support levels at the moving averages to suggest that sellers are taking over.
RSI is dipping into the oversold region to show that bears are exhausted and could be willing to let buyers take over as the oscillator pulls up. Similarly stochastic is in the oversold level to signal that sellers might take a break from here. In that case, a pullback to the broken channel bottom may be in order.
Natural gas took strong hits as traders started pricing in expectations for the inventory data. Expectations are for a 107 Bcf build in natural gas inventories, following the 106 Bcf build in stockpiles in the earlier week.
Still, weather conditions are expected to be cooler than normal in the west but warm in the southeast, so it will be interesting to see how this mixed demand forecast could play out in terms of inventory. Producers are already adjusting to the seasonal dip in demand, but it has been a struggle for commodities to stay afloat in the backdrop of risk aversion.