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Energies

Nat Gas Bias Swings Back to Bullish “Down Here”

Posted 10/07/2019 7:42AM CT | RJO Market Insights

Thur/Fri’s recovery was enough to confirm a bullish divergence in very short-term momentum, sufficient to define Thur’s 2.207 low as one of developing importance and a short-term risk parameter from which non-bearish decisions like short-covers and cautious bullish punts can be objectively based and managed.  It’d be premature to CONCLUDE the end of a suspected correction to Aug-Sep’s impressive rally that began with 20-Sep’s bearish divergence in short-term momentum discussed in that day’s Technical Blog, but given the extent of Sep-Oct’s retracement, proximity to 05-Aug’s 2.135 low and the lower-quarter of the multi-year range amidst historically bearish sentiment levels, we believe levels south of the 2.300 market present poor risk/reward merits for bears and very favorable risk/reward merits for bulls.

Indeed, MAJOR base/reversal factors that include:

  • early-Sep’s bullish divergence in WEEKLY momentum above 2.599
  • a complete 5-wave Elliott sequence down from Mar’s 3.035 high
  • historically bearish sentiment levels not seen in three years in the Bullish Consensus and 11 years in our RJO BSI, and
  • the market’s recent proximity to and rejection of the lower-quarter of the past 10-YEAR range

remain intact until and unless the market relapses below 05-Aug’s 2.135 key low and long-term risk parameter.  Admittedly, commensurately larger-degree strength above 23-Sep’s 2.511 low is required to jeopardize the impulsive integrity of the relapse from 17-Sep’s 2.745 high, render this relapse the 3-wave and thus corrective structure we believe it to be and reinforce this longer-term base/reversal count.  But for the reasons listed above and especially given how steep the past couple weeks’ relapse has been, we believe current levels around 2.32 or lower present a favorable risk/reward area from which traders should adjust biases and exposure back to the bull side with a relapse below Thur’s 2.207 required to threaten this call enough to warrant moving to the sidelines.

Finally, we’ve acknowledged the approximate 2.53-to-3.90-range in the green circle below as one in which a ton of price action has occurred over the past three years.  This area should be approached as a key resistant hurdle that could take quarters for this market to eat through.  “Chasing” bullish exposure up there comes with interim peril and risk of corrective relapses.  But this risk could be reduced sharply for traders who start to build a bullish policy “down here” from levels that we believe offer favorable long-term risk/reward merits.  A relapse below 2.207 threatens this call while a break below 05-Aug’s 2.135 low negates this specific call and reinstates the major bear.  But even then, historically, such depths would remain a very slippery slope for bears and long-term opportunity for bulls.

In sum, traders are advised to return to a cautious bullish policy from 2.320-area prices OB with a failure below 2.207 required to threaten this call enough to warrant moving to the sidelines.  In lieu of such sub2.207 weakness, we believe this market remains within a major base/reversal environment that will yield levels back into a $3.00-handle in the months and quarters ahead.

RJO Market Insights

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