Natural Gas managed to close above $3 on Friday. That was an important closing price and definitely makes the case for continued strength. However, I believe this week the commodity will become more difficult to trade. That’s because price is close to a critical juncture in which the immediate bullish thesis becomes prevailing or we’re denied that pathway for several more months.
Critical Juncture Pathways to Consider
Pathway #1: Ending Diagonal (Bearish Structure)
Personally I give this pathway a 40% chance of coming to fruition. However for confirmation that this is structure we’re trading within price should not eclipse the $3.11 area. After which we should decline impulsively to a new low as shown in the below chart.
For higher resolution: (Right click on image and select Open Image in New Tab)
Pathway #2
: Leading Diagonal (Bullish Structure)
Price is very evidently within a diagonal structure. Whether it’s an ending or leading diagonal depends entirely on what price does when it retraces this recent rally. I give this pathway a 40% chance of coming to fruition as well. Essentially, we do not know which type of diagonal we’re in so both are equal probability.
For confirmation that this is structure we’re trading within price should continue to respect the confines of the parallel lines and soon begin its retracement. Unlike the ending diagonal, the leading would have price correctively retracement and then proceed to trade above recent high. If LD is confirmed, ultimately price may not see a $2 handle again. Confirmation would take weeks.
For higher resolution: (Right click on image and select Open Image in New Tab)
Pathway #3
: Impulsive Rise (Uber Bullish Structure)
This pathway has a 20% chance of coming to fruition and confirmation will be very easy to spot. Uber bullish structure would first take price to $3.37 to $3.55 before any tradeable decline. This pathway would have price with a $4 handle within the next several months. Contrarian traders will have a difficult time making money within this structure.
For higher resolution: (Right click on image and select Open Image in New Tab)
Your comments are welcome and will be answered below.
Disclosure: Long Natural Gas with a small hedge