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Nat Gas Failure Threatens Broader Bull, Defines New Risk Levels

Posted 12/17/2018 8:07AM CT | RJO Market Insights

Fri’s break below our key risk parameter defined by 26-Nov’s 4.038 low discussed in Thur’s Technical Blog confirms a bearish divergence in momentum that, along with historically bullish sentiment levels, threatens the broader bullish count we’ve espoused since mid-Sep.  While this continued, impulsive decline could still be part of a major bull market correction given the extent of Sep-Nov’s major uptrend, a recovery above at least Thur’s 4.307 smaller-degree corrective high is now required to jeopardize the impulsive integrity of a more immediate bearish count.  Per such this 4.307 level becomes our new short-term risk parameter from which shorter-term traders can rebase and manage the risk of non-bullish decisions like long-covers and cautious bearish punts.

Natural Gas Jan '19 240 Minute Chart

Clearly, on a broader scale, Fri’s break below both 26-Nov’s 4.038 low AND 15-Oct’s 3.898 low exposes the new longer-term trend as down with this former 3.898-to-4.038-range support considered a new near-term resistance candidate.  Perhaps most importantly, last week’s break below initial counter-trend lows confirms a bearish divergence in momentum that obviously defines 14-Nov’s 4.964 high as one of developing importance and possibly the END of this year’s major uptrend.

On this scale commensurately larger-degree strength above 10-Dec’s 4.666larger-degree corrective high is required to mitigate any broader bearish count, render the past month’s relapse attempt a 3-wave and thus corrective event and resurrect the major uptrend.  In this regard that 4.666 high become our new long-term risk parameter from which long-term players can objectively base and manage the risk of non-bullish decisions like long-covers and new bearish punts.

Natural Gas Jan '19 Daily Chart

 

Natural Gas Weekly Chart

Now that the market has, in fact, broken this year’s uptrend, understandably historically bullish sentiment conditions now contribute to a peak/reversal environment that could be major in scope.  Indeed, the recent 80% reading in the Bullish Consensus (marketvane.net) is a 10-YEAR high while the 87% reading in the RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC is the highest since Dec 2002!  This COMBINATION of a bearish divergence in momentum and historically frothy sentiment is a powerful one typical of major peak/reversal environments.

IF the new trend is down, reinforcing evidence of such is expected to come in the forms of:

  • labored, corrective behavior on recovery attempts
  • the market’s ability to sustain levels below former support-turned-resistance areas like the 3.898-to-4.038-range and, most importantly,
  • sustaining losses below recent corrective highs and risk parameters like 4.307 and 4.666.

A nuance of this nat gas market however is sharp, extensive corrective rebuttals EARLY in a reversal environment.  Per such and while all bullish exposure has been nullified, traders are advised to wait for 1) a steeper correction to, say, the 4.15-to-4.20-area and 2) a countering bearish divergence in short-term mo to stem that rebound for a preferred risk/reward selling opportunity.

In sum, all previously advised bullish policy and exposure has been nullified and traders are advised to first approach rebound attempts as corrective selling opportunities ahead of what could be protracted losses in the months ahead.  Strength above at least 4.307 and preferably 4.666 is required to threaten and then negate this call and resurrect this year’s major uptrend.

Natural Gas Monthly Chart

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