Natural Gas: $2.99 Rejection Puts $2.81 Support in Focus
Natural gas futures formed a bearish shooting star after rejecting $2.99. A break below $2.89 could test $2.81 support, while a successful hold would revive the bullish path toward $3.33.
Natural gas futures rejected the $2.99 level on Thursday as the front-month contract rolled to October, forming a bearish shooting star candlestick pattern. Sellers drove prices into the lower half of the session after the high was tagged, a development that puts near-term support at $2.89 and $2.81 in focus.
The session established a higher swing low at $2.89, defining short-term support. Both the 100-day and 50-day moving averages were reclaimed during Thursday's advance. Those averages are now converging near $2.92 and $2.91 respectively, creating a resistance zone. The overlap increases the significance of that area as a pivot. So far, price behavior is showing resistance, according to Bruce, a senior market analyst.
The shooting star pattern signals a bearish bias below $2.89. A move through that level could lead to a test of support near the prior lower swing high at $2.81. That level sits near the upper boundary of the recent consolidation at the bottom of the declining trend. Bruce noted that a pullback following an initial bullish reversal signal is normal price behavior and should provide new information about demand.
This week's upside breakout from a potential bottom consolidation still suggests that at least another leg up should follow a successful test of support. The bottoming pattern took the form of a small inverse head-and-shoulders pattern. The neckline is not well defined, so the $2.81 potential support level needs to be treated as an area rather than a single point. Internal to the bottoming pattern, the 20-day moving average near $2.76 provides additional support.
The significance of the $2.81 area is amplified by the presence of a large short position in natural gas. An earlier analysis noted that 207,000 short contracts face a heat test as front-month holds support. If the current support levels hold, those shorts could be forced to cover, adding upward momentum.
On the upside, natural gas would need to reclaim the 50-day moving average and then the recent interim swing high at $2.99 before showing signs of continued strengthening. An upper target zone is the 200-day moving average, currently at $3.33 and falling. Until $2.99 is recaptured, that higher objective remains secondary to how demand responds at $2.89 and $2.81 after Thursday's rejection.
The rejection came after a larger-than-expected storage build earlier in the week had sparked a rally above the 50-day moving average. Thursday's price action suggests the move may need to consolidate before further gains. The 200-day moving average at $3.33, which is falling, marks the next major upside target if the pattern resolves upward.
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