During all the chaos of the response to coronavirus, there has been one area of logic and sanity. Surprisingly enough, given its deserved reputation for massive volatility, the market in natural gas futures has resisted the temptation to follow the stock market and oil futures in overreacting massively to every bit of coronavirus-related news or data. It has, on the whole, moved logically based on long-term supply and demand factors, rather than the latest headlines.
Sure, natty did fall as stocks collapsed, beginning in late February, but that was a continuation of a downward trend that had started in November and that was being driven by oversupply and weak demand that had nothing to do with the pandemic. Similarly, it bottomed out in late March, at roughly the same time as stocks and oil, but the rebound in NG didn’t continue and accelerate past any logical endpoint as stocks did. There was no equivalent of insane speculation on bankrupt stocks here, and volatility has been reducing sharply for a while.
Natural gas, however, looks poised for a big move soon.
As you can see from the chart, NG has been trading in a decreasing range since that March low, forming a steep wedge pattern. A breakout from that is inevitable before long and when it comes, a big move in percentage terms looks certain.
Obviously, the most important question for traders is which side will give…will there be a breakout higher or a breakdown lower?