Natural gas looks doomed again. Poor old natty has spent the entire week declining from an already low level, and two things that happened during that drop suggest that it is far from over. At this point, a break of the psychologically important $2 level looks imminent and if that happens it will probably trigger even more selling as the last of the stubborn longs rush for the exit.
The first of those things happened on Tuesday when the long-term chart for natural gas futures (NG) exhibited a well-known, ominous-sounding pattern…a death cross.
It can be seen on the chart above, when the solid yellow line, which represents the 50-day moving average, crosses the blue line, representing the 100-day average. That is generally considered by traders and analysts to be a very bearish indicator.
The problem with anything like this that relies on momentum is that to some extent, when the signal appears it is really just a confirmation of something that has already occurred. Natty has been falling since it hit a peak of around 2.90 in early November, so a bearish signal can’t really be seen as new. However, the price action that followed the last, similar signal suggests that it shouldn’t be ignored.
In October, natural gas futures did the opposite…they showed a “golden cross”, when the short-term average crosses the long in an upward direction. I pointed that out in an article in these pages at the time, and sure…