Looking at the weekly chart of natural gas, it is clear the bulls have been in control but technical oscillators are now in overbought territory at a time in which multiple technical resistance areas are looming and, as mentioned, seasonal pressures are bearish. These are signs that the upside is limited from here. Specifically, the weekly RSI is near a 70 reading which would indicate a dramatically overheated market (no pun intended). In recent years, natural gas rallies have been stopped in their tracks by an RSI this elevated. The Williams %R is hovering in the high 90s, suggesting the upswing is potentially unsustainable.
The downtrend line dating back to the June 2014 high, as well as two mid-2015 swing highs, pose resistance near $3.00; precisely at $2.95 and $3.10. On a daily chart, I see a significant resistance level at $2.83, about five to ten cents higher than the current value. In short, the weekly chart tells us the odds are in favor of a reversal in the high $2.00 area; and even on the off chance we see a $3.00 print, resistance at $3.10 will likely be more than the bulls could handle.
To confirm the premise that the upside in natural gas was limited, we visited the daily chart. The daily chart is pointing toward technical resistance created by an expanding trading range pattern near $2.83, a lower level than the weekly chart suggests, but it too is surely indicating the rally could be running out of steam sooner rather than later. Accordingly, the gas bulls should be looking at protecting profits and the bears should be starting to get interested.
Although the long-term trading channel on a weekly chart suggests gas could return to the mid-to-high $1.00s on a correction (remember, this rally started from $1.60), the shift from coal to natural gas and abnormal weather patterns should keep gas prices over $2.00. We believe seasonal and technical pressure could push gas prices to the $2.18 to $2.09 level, which would be a full retest of the spring lows.
