How Bad Does This Look?!
This is probably one of the worst charts that you can find on the global commodities markets. It has been declining since early July like many other energy-related products. First it fell sharply during July, then at a slower pace but following a clear and regular bearish trend.
Lower and Lower…
This trend is characterized by regular lower highs and lower lows. The lower highs are points A, B, C, D, E and F which have been posted on regular basis since early August 2008. The lower lows are points G, H and I. This bearish trend is quite similar (in the opposite direction) to the bullish trend occurred during the first half of 2008, when prices jumped from $8.90 to $14.50 (+63% en 6 months). From point A to the current level, prices corrected by more than 50%.
Resistance is Futile
The line that goes through the higher highs is the immediate resistance line whereas the line that goes through the lower lows is the immediate support level for the price action.
It actually tracks the 40-day moving average that also acts as a resistance as it previously acted as a support when prices were moving up from the beginning of 2008.
Each small rebound generated has each time been contained by the sellers that were positioned on this 40-day moving average.
The Bears are Winning
Between December 22 and January 6 a bounce back has driven the price from $5.39 to a high of $6.24 (+15.8%). Prices fell back sharply and a new historical low has been posted at $4.8010 last Friday. As a consequence, the technical indicators turned bearish and argue for a further move on the downside.
The MACD has just peaked, curved downward and crossed below its signal line, which means that it is more than likely that a further move on the downside occurs. The RSI confirms that the near term targets are lower than the current levels. The oscillator did not enter yet its oversold area. In this scenario, the lower band of the trading channel is obviously the next objective for price development.
Waiting for the Bulls to Come Out of Hiding
Traders should indeed push prices towards $4 where some bull interest is likely to appear, betting that the support line is a strong basis to become “long” again. Moreover at this level oscillators will show that Natural Gas is oversold.
Of course, a break below the support line would be a strong new bearish signal and would open the door to a further significant decline, as it did in July (ellipse, point K).