Nat Gas Gains Contribute to Base/Reversal Count

July 18, 2017 8:18AM CDT

Overnight's break above 11-Jul's 3.053 initial counter-trend high reinforces our base/reversal count introduced in 11-Jul's Technical Blog and leaves Fri's 2.928 low in its wake as the latest smaller-degree corrective low and new short-term parameter from which the risk of recommended bullish exposure from 3.000 OB can be objectively rebased and managed.  29-Jun's 3.122 larger-degree corrective high remains intact as an obvious hurdle to this count, but we believe that today's continued strength reinforces this call and increases the odds of a 3.122+ upside breakout that could then lead to potentially significant, if intra-range gains.

Natural Gas 240 min Chart

Natural Gas Daily Chart

While 29-Jun's 3.122 high remains intact as a level this market is still required to break to, in fact, break May-Jul's downtrend, today's break above 11-Jul's 3.053 initial counter-trend high arguably confirms a bullish divergence in daily mo above.  Add to this the textbook example of a 5-wave Elliott sequence down from 12-May's 3.53 high AND the Fibonacci fact that this decline was virtually identical in length (i.e. 1.000 progression) to Dec-Feb's preceding 3.624 - 2.910 decline on a weekly basis of the Aug contract below, and it's hard not to see the developing factors that contribute to a base/reversal count calling for at least a larger-degree correction of May-Jul's decline to levels potentially well above 3.13.

Natural Gas Weekly Chart

All this said however, the weekly log active-continuation chart below shows the market still deep within the middle-half bowels of a 2.50-to-3.90-ramge that has encapsulated the prompt contract for the past YEAR.  Such range-center environs cannot be ignored as being rife with aimless whipsaw risk and directionally challenged price action, so we're not necessarily looking for a bullish home run.  And the relatively neutral/mixed sentiment indicators would seem to reinforce this.  But until and unless this market weakens below at least our short-term risk parameter at 2.928, a 50% or 61.8% retrace of May-Jul's decline to the 3.16-to-3.25-range shown in the daily chart should not come as a surprise.

In sum, a cautious bullish policy remains advised from 3.000 OB with a failure below 2.928 required to threaten this call enough to warrants its cover.  In lieu of such weakness we anticipate an intra-range breakout above 3.122 to the 3.16-to-3.24-range or higher where we'll then be watchful for a countering bearish divergence in short-term mo to cover the trade.

Natural Gas Weekly Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.