About a month ago, I wrote that while natural gas was bouncing after a big drop at that time, shorting when that retracement showed signs of ending was the trade to take. If you followed that advice, you probably wouldn’t have hit the high of that bounce above $3.70 but would quite likely have sold somewhere around $3.40-$3.50, once the reverse was confirmed. By now you would either have banked a nice profit or be sitting pretty. That analysis was based on a reading of a long-term chart however, and the same chart now says that it is time to take the opposite tack and buy.
(Click to enlarge)
The reason is the most basic one of all when it comes to chart analysis, a clearly defined support level. As you can see, since coming off the low of $1.611 achieved early in 2016, the NG futures contract has bounced off the $2.50 level, marked by the blue line on the chart above, a total of six times. We are now close to that level again.
Now, anyone who has ever traded knows that that doesn’t guarantee that we will move higher from here. The chart also shows, by virtue of that 2016 move, that prices can go a lot lower than $2.50, so that is always a possibility. What it does though is increase the likelihood that we move up from here, and there are other, fundamental things that support that contention.
Probably the biggest fundamental factor that has pushed natural gas lower is oversupply. The shale boom in the U.S. has led to more natural…