Nat Gas Peak/Reversal Process Unfolding According to Script

January 30, 2017 2:22AM CST

The market's relapse Fri and rejection (again) of the area around 17-Jan's 3.489 high and (3.469) 50% retrace of late-Dec/early-Jan's plunge from 3.826 to 3.11 in the now-prompt Mar contract is consistent with our broader peak/reversal count last updated in 24-Jan's Technical Blog .  As a direct result of this latest relapse that reinforces a bearish count requirement that the recovery attempt from 09-Jan's 3.110 low be a 3-wave and thus corrective affair, we believe Thur's 3.498 high serves as the end or upper boundary of such a (B- or 2nd-Wave) correction and new short-term risk parameter to a resumed bearish policy.

The market's position in the middle of the past couple weeks' 3.11 - 3.50-range is not the most preferred from which to initiate directional exposure as the risk/reward merits of such are poor, so a more conservative approach to risk assumption is advised.

Natural Gas 240 min Chart

Natural Gas Daily Chart

From a long-term perspective the past three weeks' 3-wave, 50% rebuttal to late-Dec/early-Jan's plunge is pretty much exactly the price action expected of our broader peak/reversal count introduced in 03-Jan's Technical Blog .  This major peak/reversal count stems from:

  • 03-Jan's bearish divergence in momentum that stemmed an
  • arguable 3-wave and thus corrective recovery from 07Mat16's 1.611 low amidst
  • historically bullish levels in our RJO Bullish Sentiment Index not seen since those that warned of and accompanied Feb 2003's major correction low.

The market has not posted two excellent and objective risk levels at 3.500 and 3.902 from which a bearish policy and exposure can be objectively based and managed ahead of at least a major correction of the 2016 recovery from 11.611 and possibly a resumption of the secular bear market to new lows below 1.611.

Natural Gas Active Weekly Chart

The monthly log scale active-continuation chart below shows the past 25-year history of this market and gravity of 2016's sharp recovery in the RJO Bullish Sentiment Index to its highest reading since Feb 2003.  The Fibonacci fact that last year's impressive rally stalled within a nickel of the (3.85) 38.2% retrace of the entire 10-yr secular bear market from 15.78 to 1.611 would seem to reinforce last month's 3.90 high as one of key importance heading forward.

These issues considered, a bearish policy remains advised for long-term players with strength above 3.50 required to pare this exposure to more conservative levels and subsequent strength above 3.902 required to jettison the position altogether.  Shorter-term traders with tighter risk profiles are advised to establish cautious bearish exposure from at-the-market (3.28) on a scale-up to the 3.40-area with a recovery above 3.50 required to negate this specific call.  We anticipate a resumption of the early-Jan decline to new lows and potentially steep losses below 09-Jan's 3.110 low.  A return to 2.50-area levels or below in the months ahead should not come as a surprise while the market sustains levels below our two risk parameters at 3.50 and 3.90.

Natural Gas Monthly Chart

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