Nat Gas Risk/Reward Preference Shifts Back to Bull from Lower-Range

September 27, 2017 8:26AM CDT

As a result of yesterday's continuation of the past week's relapse, the 240-min chart below shows that the market has left Mon's 3.049 high in its wake in the now-prompt Nov contract as the latest smaller-degree corrective high it would not be expected to sustain losses below to maintain this downtrend.  Its failure to do so would confirm a bullish divergence in momentum, stem the slide and expose at least another intra-range rebound.  In this regard we're considering 3.050 as our new short-term risk parameter to any non-bearish decisions like short-covers or cautious bullish punts.

This said however, we believe the combination of:

  • this waning downside momentum
  • the market's proximity to 08-Sep's key 2.957 low and the lower-quarter of the past quarter's 3.21 - 2.88-range and
  • an arguably complete, even textbook 5-wave Elliott sequence down from 19-Sep's 3.214 high

warrants jumping the gun here a little bit and moving to a neutral-to-cautiously-bullish policy from current 3.030-area prices OB with a failure below our long-term risk parameter defined by that 08-Sep 2.957 low.

Natural Gas 240 min Chart

Natural Gas Daily Chart

On a broader daily basis above, there is no question that Aug-Sep's recovery from 2.886 to 3.214 THUS FAR is only a 3-wave affair as labeled.  Combined with the market's rejection of the (3.223) 5-% retrace of May-Aug's 3.561 - 2.886 decline, it is not hard at all to envision Aug-Sep's recovery attempt as a corrective structure that warns of a resumption of May-Aug's major downtrend that preceded it.  Proof of weakness below 08-Sep's 2.957 low and our key risk parameter remains required however to confirm such a count and expose a run at new lows below 2.886.

Until such sub-2.957 weakness is confirmed however, and especially if this market confirms a short-term mo failure above 3.050, we can also look back at the past three months' price action as a major "rounding-bottom" reversal-threat pattern.  And on an even broader weekly basis of the Nov contract below, such a broader, if intra-range recovery is reinforced by the prospect that the sell-off attempt from Dec'16's 3.654 high is just a 3-wave and arguably corrective structure in which the prospect C-Wave down from 12-May's 3.561 was identical in length (i.e. 1.000 progression) to Dec-Feb's initial 3.654 - 2.976 decline.

Natural Gas Weekly Chart

 

The bottom line on this market, and perhaps best illustrated in the weekly log active-continuation chart below, is that it remains deep within a "ranges-within-ranges" environment in which aimless whipsaw risk is the rule rather than the exception.  Few trading home runs are hit under such aimless, lateral, choppy and not atypical environments that warrant a more conservative approach to risk assumption.

These issues considered, traders are advised to move to a neutral-to-cautiously-bullish stance from current 3.030-area levels OB with a failure below 2.957 required to negate this call.  In lieu of such weakness and especially following a bullish divergence in short-term mo above 3.050, we'd anticipate at least a return to the upper recesses of the 3-month range in the 3.15-to-3.20-area and possibly a break above last week's 3.214 high.

Natural Gas Weekly Chart

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