It’s been a long time since my last post. Much has happened in the stock market, of course, and I hope to comment on that soon. But first I wanted to take a look at the natural gas market. Natural gas has been in a bear market for a very long time. You can see on the weekly chart above that the moving average lines (blue and cyan lines over the price bars) have been persistently down for the entire chart. In fact you’d have to go back to 2008 to find this particular moving average combination to be bullish. It doesn’t matter much what moving average you use, most but the very shortest would show a prolonged bearish trend. And the trend is still bearish. But there are some signs that maybe the downtrend could be approaching a major low, or possibly has already seen that low. Note that the charts shown are of UNG, which is the etf of natural gas futures. The actual futures price will be a bit different, especially if you string together the individual contract to make a longer term chart.
The chart above is the daily UNG chart. For most of the chart there is a series of mostly lower lows and lower highs. That pattern hasn’t changed yet, but the moving average lines finally crossed up after a triple bullish divergence in the momentum indicator in the lower sub-graph. These divergences don’t by themselves indicate a bottom, but it can sometimes be a good advance warning. The price structure is the most important factor. But with the weekly cycle also up, and the moving averages positive, it is worth keeping an eye on the next decline to see if this market can put in a higher low and then make a breakout to the upside, which would confirm a trend change.
Regarding sentiment, I know of many traders that have been trying to pick a bottom in this market from much higher prices. I could see no reason to probe the upside during such a well defined downtrend. I don’t hear as much from the bottom pickers lately, but I hear accelerated news coverage about the oversupply of gas from new extracting techniques, the warm winter, the lack of storage, and on and on. At markets bottoms the news is usually the most bearish. It will seem that the market can never go up again. There seems to be no logical reason for a price advance with so much negative news, and with analysts projections of even lower prices. This reminds be of the sugar market back in the 1980’s, when world sugar went under 3 cents a pound. Every analyst I heard said sugar was headed to a penny. There was only bearish news. There were jokes in the financial media suggesting that sugar would trade at less than the cost of the bag to put it in. It was certainly under the cost of production. At the time that the news media wrote more and more bearish stories about sugar, prices were actually already on the rise to a new bull market. Natural gas seems to be in a very similar situation now. Of course the major trend still remains down, but it might be worth keeping a close watch on the price action to see if this major downtrend comes to a conclusion.