Can Crude, NatGas Break Out Of Their Range?

Both December Crude Oil and December Natural Gas markets are experiencing weakness at this time for various reasons. Crude oil, for example, has been pressured off its recent high because of uncertainty over whether OPEC can get all of its members on the same page as to the size of its proposed production cuts.

The December Natural Gas futures contract has been extremely volatile and bearish because of weather concerns. Temperatures have been unseasonably warm, creating problems on the demand side of the equation. Furthermore, there are even worries that this warm temperature pattern will continue into late December and perhaps early January.

This week's article takes a look at the current chart patterns on the weekly charts and attempts to identify key value areas that may be attractive to buyers. These are also areas that could keep the bullish tones in these markets intact.

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Technical Analysis

The main trend is up according to the weekly swing chart. However, momentum is now pointing lower.

The short-term range is $43.77 to $52.22. Its retracement zone at $48.00 to $47.00 is the primary downside target. The main range is $41.58 to $52.22. Its retracement zone is $46.90 to $45.62. Combining the two retracement zones gives us a potential support cluster at $47.00 to $46.90.

Forecast

Based on the current price at $49.26, the direction of the crude oil market today is likely to be determined by trader reaction to the uptrending angle at $49.77 next week.

A sustained move over $49.77 will indicate the presence of buyers. This could generate enough upside momentum to fuel a rally into a short-term 50% level at $50.55 then the main top at $52.22.

A sustained move under $49.77 will signal the presence of sellers. This could trigger a break into the short-term 50% level at $48.00.

If the selling is strong enough to take out $48.00 then the break is likely to extend into the support cluster at $47.00 to $46.90. This area is the primary downside target and should be considered a value zone.

With the main trend up, look for buyers to come in on a test of $47.00 to $46.90.

December Natural Gas Futures

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Technical Analysis

The main trend is down according to the weekly swing chart. It turned down this week when the market took out the two swing bottoms at $3.112 and $3.010. This week's low is $2.972. The next major downside target under this low is the $2.760 main bottom.

The main range is $2.370 to $3.556. Its retracement zone is $2.963 to $2.823. This zone is the primary downside target.

The short-term range is currently $3.556 to $2.972. Its retracement zone at $3.264 to $3.333 is the primary upside target.

Forecast

Based on the current price at $3.068, the direction of the December Natural Gas futures contract next week is likely to be determined by trader reaction to the long-term uptrending angle at $3.070.

A sustained move over $3.070 will indicate the presence of buyers. This could generate enough upside momentum to fuel a rally into the short-term retracement zone at $3.264 to $3.333.

A sustained move under $3.070 will signal the presence of sellers. This could generate enough downside momentum to test the major retracement zone at $2.963 to $2.823. This is the primary downside target so I expect to see aggressive counter-trend buyers come in on a test of this zone.

If buyers don't show up inside $2.963 to $2.823 then look for the selling to extend into the next potential support angle at $2.720.

Conclusion

The current patterns taking place on both the Weekly December Crude Oil and Weekly December Natural Gas charts are pretty common and easily recognizable by most experienced traders. Therefore, I am confident that these markets will complete their respective 50% to 61.8% retracements of their recent rallies.

Despite identifying the key target areas and the zones that are likely to be attractive to speculative buyers, both markets will need a catalyst to reverse the momentum back to the upside.

For crude oil, the catalyst that will be necessary to resume the strong uptrend will be renewed confidence in OPEC's ability to rally the other members into accepting their proposed production cuts.

For natural gas, the catalyst will be a change in the weather to more seasonal temperatures. There is still time for a winter rally, but it is probably going to take an early jolt of cold temperatures in mid-November to get this market revved up enough to restart its recent wave of bullishness. Traders know that inventories may be near record highs at that time so a forecast for a long, lingering cold spell may be necessary for this market to overtake the recent high at $3.556.