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Natural Gas Futures Hit 13-Year High in Overbought Zone

Natural gas futures (May delivery) further brightened their long-term bullish outlook on Tuesday, stretching their impressive five-week rally to a new 13-year high of 6.825.

Despite the clear positive pattern in the market, which is well endorsed by the upward-sloping simple moving averages (SMAs), some signs of weakness are already evident on the four-hour chart. The price has started to decelerate after printing a squeezed evening star candlestick earlier today, reflecting fading buying appetite. Likewise, the RSI and the Stochastics seem to have found a peak in the overbought area, suggesting that the bullish action is overdone. The MACD has started to lose steam, backing the above narrative as well.

A downside correction, however, would not cause any serious concerns unless the price dips below the supportive 20-period SMA currently at 6.425. Then, a decisive close below the 23.6% Fibonacci retracement of the 4.494 – 6.825 upleg at 6.275 would violate the bullish trend, likely sending the price straight to the 50-period SMA at 6.075. Another failure near the 38.2% Fibonacci of 5.935 may produce a sharper decline towards the 50% Fibonacci of 5.659.

Otherwise, if the bulls retake control above 6.825, resistance could next develop around the 7.000 round level. A successful penetration at this point could shift attention to the 7.400 – 8.000 zone last active during the 2004 – 2009 period. Running higher, the price could pause around the 9.00 psychological mark.

In brief, natural gas futures are expected to give up some ground as the market is hovering within the overbought zone. A pullback, however, would still be part of an uptrending market unless the price strikes a new lower low below 6.275.

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