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Next Lower Target at $3.07
Since the market seemed to recognize the 61.8% retracement zone, the next lower Fibonacci level at $3.07 seems destined to be tested as support before the bearish correction completes. And given the degree of bearish momentum exhibited in the wide range red candle for the day, the next uptrend line may also be tested as support before the bearish correction completes.
Beware of Another Step in Pattern Evolution
The scenario unfolding fits with the larger pattern discussed earlier. A breakdown from a head and shoulders top triggered on April 7 and it led to a sharp decline. Eventually support was found at what is now a swing low of $2.86. That support area was marked by the light blue anchored volume weighted average price line (AVWAP) from the 2024 trend lows. In other words, a potentially significant price level given that it incorporates the full uptrend.
So far, that has been the case. Given its potentially long-term significance, it would be the maximum estimated low for the current decline. The more likely scenario seems to be that support is found at or above the uptrend line and that leads to a bullish reversal. A higher swing low would then be established.
200-Day Moving Average Plays a Role
Not mentioned yet is the 200-Day MA. It is now at $3.19, and it failed to hold as support during Monday’s decline. That is fine if natural gas doesn’t stay below the 200-Day line for long. Notice that the 200-Day MA was breached during the prior drop that triggered the head and shoulders top pattern. The subsequent recovery quickly rallied above the 200-Day MA, and the bulls stayed in the chart until the recent trend high at $3.84.
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