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Second Test of Support at 20-Day Line
Following a swing low of $2.99 from late-January, natural gas reclaimed its 20-Day MA on February 13. Shortly thereafter, the advance accelerated and subsequently encountered resistance around the top trendline of a large rising parallel trend channel. That led to a decline and an eventual higher swing low at $3.74. Support around the 20-Day MA and the 50-Day MA (orange) were successfully tested around the swing low as it was followed by a bullish key reversal day. The current decline is testing support around the 20-Day line for the first time it was tested in mid-February.
Two Lines Show Dynamic Trend Support
Initial dynamic trend support for the current bearish pullback is around the 20-Day MA and internal uptrend line. If support is maintained around those lines, then the structure of the uptrend from $2.99 remains intact. But a decisive drop below both lines will indicate the potential for a deeper retracement. But further signs of weakening would be needed to further confirm the breakdown.
There is always the possibility of a false breakdown that quickly reclaims the trend support lines. The 38.2% Fibonacci retracement level at $4.17 failed to show support on the way down today. This opens the possibility of an eventual test of support around the 50% retracement level at $3.95. Of course, the 20-Day line and trendline would be broken before then.
Strong Resistance at Top Channel Line
Resistance has been encountered around the top line of a rising channel multiple times since the December interim swing high. On Monday, a bullish breakout of the channel led to a new trend high of $4.90 and then a failure of the breakout given the quick bearish reversal and subsequent downside continuation. Therefore, it is possible that a bearish correction could test lower support levels, below the trendline, before it is done.
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