• Natural gas futures reach caution area

• Market structure sends encouraging signals

Natural gas futures (November delivery) have been gently trending up since April’s 32-month lows, marking new higher highs and higher lows at a soft pace.

The recent upturn in the price brought the January 2023 resistance territory of 3.40 under the spotlight. Interestingly, this is where the bulls faced confluence at the end of October 2020 and it took them seven months to crack that wall and stage an impressive rally to 6.44 in October 2021.

Monday’s candlestick, with a small body at the top of an upward channel, has raised concerns about an upcoming bearish wave. Note that the RSI and the stochastic oscillator have entered overbought waters. Yet, the positive crossings of the short and long-term SMAs show an upward trend forming.

The 78.6% Fibonacci retracement of the 2020-2022 uptrend is currently buffering downside pressures at 3.30. If that floor stays firm, with the price ascending above the channel too, resistance could next emerge somewhere between 3.77 and the 2023 high of 4.00. A successful battle there could activate new buying orders up to the 61.8% Fibonacci of 4.70.

Alternatively, a slide below 3.30 could see a test of the 20- and 50-day SMAs, while the channel’s lower band and the 200-day SMA could reject any declines towards the 2.50 base. Should the latter give way, the bears may re-challenge the 2023 floor of 2.10-2.00 with scope to expand the downtrend to the 2020 base of 1.50.

In a nutshell, natural gas futures could experience some profit taking in the short-term following a week of gains. As regards the market trend though, there are signs of improvement.