Posted on Sep 22, 2023, 08:00 by Dave Toth

Readers of our nat gas analysis know we’ve been discussing a potentially major base/reversal count for the past five months.  We introduced a potentially major base/reversal count in 18-Apr’s Technical Webcast following that day’s bullish divergence in short-term momentum that left 14-Apr’s 1.946 low in the then-prompt May contract in its wake as one of developing importance and the prospective end to a massive 5-wave Elliott sequence down from Aug’22’s 10.028 high.  Shown in the weekly log active-continuation chart below, the market hasn’t come close to that level since and, despite new 2-YEAR LOWS in the now-prompt Nov contract, remains nearly a full buck above that 1.946 low.

On an active-continuation basis, the technical elements that (still) warn of a major base/reversal remain intact:

  • a confirmed bullish divergence in weekly momentum that, in fact, has broken Aug’22 – Apr’23’s major downtrend
  • (still) historically bearish levels in the Bullish Consensus ( measure of market sentiment/contrary opinion
    • NG fundamentals remain decidedly bearish, which is typical at major bottoms
  • an arguably complete and massive 5-wave Elliott sequence down from last year’s 10.028 high, and
  • the market’s engagement and thus far rejection of the lower-quarter of its massive but lateral historical range shown in the monthly log active-continuation chart above.

Might the recovery from Apr’s 1.946 low be just the 4th-Wave correction of the sequence down from 10.028 before a final 5th-Wave plunge to levels below 1.946?  Yeah, sure.  But with the now-prompt Nov23 contract’s break to a new low for the past 13-month downtrend, the longer-term bear would be expected to BEHAVE LIKE ONE with trendy, impulsive and increasingly obvious price action to the downside.  Indeed, such a count would require another $1.00-plunge straight away.

Drilling down to the Nov contract specifically, the weekly log close-only cart above shows the prospect for a textbook complete or completing and major 5-wave sequence down from Aug’22’s 6.095 high weekly close.  To confirm a threatening bullish divergence in momentum needed to, in fact, break this downtrend and expose a major reversal, this contract needs to close out a week above 11-Aug’s 3.364 corrective high close.  On a daily basis below, that longer-term bear risk parameter is defined by 09-Aug’s 3.451 high daily close.

On a shorter-term and more practical basis, the daily log close-only chart below pinpoints Tue’s 3.025 close as the latest corrective high this contract would be expected to sustain losses below to maintain a more immediate bearish count, and certainly if resuming the secular bear trend to a level below Apr’s 1.946 low is what this market as in mind.  A close above 3.025 will confirm a bullish divergence in daily momentum, complete a 5-wave sequence down 09-Aug’s 3.451 high and possibly complete the massive 5-wave sequence down from Aug’22’s 6.095 high.  In this regard, Tue’s 3.025 corrective high serves as our new key parameter from which traders can objectively base non-bullish decisions like long-covers and bearish punts.

Drilling down even further, the 240-min chart below details this week’s resumption of the Nov contract’s broader bear trend that shows smaller- and larger-degree intra-day corrective highs at 2.963 and 3.072, respectively.  These levels serve as our new short- and longer-term parameters from which the risk of non-bullish decisions can be objectively based and managed.

In sum, the major bear trend has resumed in the now-prompt Nov23 contract, requiring a recovery above at least 2.963 and preferably 3.072 required to once again threaten a bearish count and resurrect a base/reversal count that we believe will be major in scope, exposing a prospective run to the $4.00- or $5.00-handles.  While a major base/reversal count remains intact on an active-continuation basis, a neutral-to-cautiously-bearish stance is advised for the now-prompt Nov contract with a recovery above 3.072 required to once again threaten a broader bearish count and resurrect a broader bullish count.

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