Major Gap Up in Natural Gas

Check out the short video in the link below to see the technical outlook for natural gas futures.

US natural gas futures rebounded in a very big way with a solid gap up on Monday. This was due expectations that LNG exports would increase because of the end of maintenance outages in plants including Berkshire Hathaway Energy, Cove Point LNG and Freeport LNG.

Nat gas has already fallen almost 60% in the past nine weeks and remain close to seven-month lows. This was caused by lower forecasts of weather-driven demand, record domestic production levels, and reduced liquefied natural gas (LNG) exports that allowed utilities to inject more gas into storage.

This news of the plant reopenings sent Nat Gas way up with an over 10% gap up in price. Technically speaking the commodity is in a strong downtrend. The price needs to climb above trending resistance to be considered bullish. I've highlighted this resistance level in the chart below.

The price gapped up above the previous 52-week lows and above a very long-term Fibonacci level. This appears very bullish. But I won't be convinced of any bullishness until we get above the dynamic resistance. Conveniently the price gapped up to a shorter-term Fibonacci level around the 5.87 price point. The next horizontal resistance level above that is another longer term Fibonacci level which is near the 6.36 price point. After a 10% jump and price you can expect some profit taking to happen. If that does happen the price might come back down to a Fibonacci support level which is at the 5.43 price point. Watch these levels for potential price reversals.

Always remember that you should not fight the trend. Right now the trend in natural gas is down even after considering the 10% Gap up. Personally I would not jump into any long positions on natural gas just yet. But after a 10% Gap up it is definitely a good idea to keep eyes on natural gas futures. Last time there was a 10% move in that gas Futures it was to the downside and it signaled the beginning of the current downtrend that the commodity experiencing currently. So watch to see if this upward momentum can hold. Or it may die off quick and the downtrend will continue. If that is the case like I believe then there may be a very good short opportunity in the very near future.

So what do you think? Will there be a rally in natural gas futures? Or will this bullishness end soon and the downtrend will continue?