Author: Dean Rogers, CMT

Dean Rogers, CMT is the general manager of the Kase Call Center in Albuquerque, New Mexico. He oversees all of Kase and Company, Inc.’s operations including research and development, marketing, and client support. Dean began his career with Kase in early 2001 as a programmer but has developed into Kase’s senior technical analyst. He writes Kase’s award-winning weekly Crude Oil, Natural Gas, and Metals Commentaries. He is an instructor at Kase's classes and webinars and provides all of the necessary training and support for Kase's hedging models and trading indicators for both retail and institutional traders.

July natural gas rose to a new high for 2016 when it overcame the January 8 swing high of $2.635. The move up extended to crucial resistance near $2.75 and stalled. $2.75 is a confluent target. Most importantly, it is the 1.382 projection of the primary wave $1.949 – 2.427 – 2.08.

Negative Factors

July’s decline on Wednesday is reportedly due to revised weather forecasts that call for cooler than previously expected temperatures over the next two weeks. In addition, some traders are allegedly concerned that factors behind the rapid price increase in recent weeks have been overhyped.

Momentum is setup for a bearish divergence on the KasePO and the Stochastic is in extreme overbought territory. There is also an evening star, which is a bearish candlestick reversal pattern. These factors indicate the correction that began late Wednesday afternoon should extend over the next few days.

Look for $2.64 to be tested tomorrow (or even Wednesday afternoon). This is currently the 21 percent retracement from $2.101 to $2.786. This was strong resistance and will likely be resilient support. A close below $2.64 would open the way for $2.52, the 38 percent retracement from $2.101. A normal correction should hold $2.52. However, after such a strong move up, the correction might be larger than normal.

Positive Factors

The longer-term outlook for natural gas is positive. This downward correction will most likely form a complex Wave IV of a longer-term five-wave trend. However, should prices turn higher again tomorrow, look for resistance at $2.72 followed by $2.80 and most importantly $2.87. The latter is the 1.618 projection of the wave up from $1.949. A significant correction will almost certainly take place before $2.87 is overcome should the current correction stall before reaching at least $2.52.

This is a brief natural gas forecast for the next day or so. Our weekly Natural Gas Commentary is a much more detailed and thorough analysis. If you are interested in learning more, please sign up for a complimentary four-week trial.

The falling U.S. dollar and higher probability the U.K. will vote to remain in the European Union are reportedly causes for crude oil’s recovery. However, some analysts have stated that increasing U.S. rig counts and production coming back online in Canada will keep a lid on oil prices for the near term.

August WTI crude oil met crucial support at $46.41 on Friday before turning higher and forming a daily bullish engulfing line. So far, the move up to $50.0 has retraced 62 percent of the decline from $52.28 to $46.4. A close over $50.0 would significantly increase odds for $51.0 and possibly $52.3 later this week.

Support at $48.6 will most likely hold. The key level for the next few days will be $47.8. These are the 38 and 62 percent retracements from $46.4 to $50.0, respectively. A close below $47.8 would indicate the move up has likely formed Wave B of a larger scale ABC correction. This would in turn open the way for the downward correction to extend to targets in the mid-to-low $40s.

This scenario is less likely given the strong price rise over the past few days. With all factors considered, crude oil will most likely settle into a range in the upper $40s and low $50s soon while it sorts through the conflicting geopolitical, fundamental, and technical factors.

This is a brief analysis and outlook for the next day or so. Our weekly Crude Oil Commentary is a much more detailed and thorough energy price forecast. If you are interested in learning more, please sign up for a complimentary four-week trial.

Warm summer weather and a smaller than expected build reported last Thursday were allegedly the catalysts for the surge higher to $2.635. The recent string of smaller than expected builds has some analysts and traders speculating that the glut of gas in storage may shrink much faster than originally expected.

July natural gas challenged its $2.635 high made January 8, 2016 on June 13. So far, this important resistance level has held and prices have settled into a choppy range between $2.535 and $2.635. The market is most likely waiting for tomorrow’s EIA Natural Gas Storage Report before breaking higher or lower out of the range.

There is little doubt that the longer-term outlook for natural gas is positive. The sustained close over $2.57, the 1.00 projection for the wave $1.939 – 2.427 – 2.08, calls for $2.75 and possibly $2.87, the 1.382 and 1.618 projections, respectively. The move up is due for a correction, but a significant pullback might not take place until these targets are fulfilled. We doubt prices will rise above $2.87 without a major correction first.

That said, $2.635 has held and the KasePO PeakOut and an overbought Stochastic indicate a deeper pullback might take place first. There is also a double top (some might argue a triple top) at $2.635. Tomorrow’s EIA number, if bearish, could lead to a break lower out of the range.

First support is $2.535, and a close below this would confirm the double top and call for $2.44. The $2.44 level is expected to hold. A close below this would indicate the market is reassessing the validity and strength of the recent move up.

As WTI crude oil prices fall from the recent $51.67 high, some reports indicate the pullback is due to the rising U.S. dollar and increased rig counts for the second week in a row. Pundits have also stated the sharp price surge could encourage some producers to increase production, keeping the market oversupplied. Others still believe recent supply disruptions in Canada and Nigeria will be supportive.

From a technical perspective, WTI’s move up had become extended and was due for a correction. The confirmed dark cloud cover, bearish daily divergences, weekly shooting stars, and monthly evening star setups indicate the majority of technical factors are negative for the near-term.

Support at $48.6 was challenged Monday, but held on the close. A move below $48.6 in early trading Tuesday would open the way for at least $47.7 and possibly $46.7. Both targets are near major swing lows that may hold initially. Therefore, we expect the move down will be choppy as it unfolds over the next few days.

There is a modest chance that Tuesday’s morning star setup will test Friday’s $49.8 midpoint first. This is near the 38 percent retracement of the decline from $51.67 to $48.16 and the 1.00 projection of the small wave up from $48.16. Key resistance is $50.3. This is the 62 percent retracement and 1.618 projection. Resistance at $50.3 is expected to hold. A close over $50.3 would call for prices to retest the $51.67 swing high.

Natural gas prices have risen sharply over the past seven days. July rose to $2.501 in early trading Wednesday, overcoming the continuation chart’s $2.495 high for 2016. Reports indicate the surge has been due to forecasts for higher temperatures in coming weeks. However, some think the move up may be too aggressive considering storage levels are still 35 percent higher than the five-year average for this time of year.

Technical factors have been positive too. Last week’s close over key resistance at $2.38 cleared the way for at least $2.57 and possibly higher during the course of summer months. Overall, the outlook is positive for the longer-term.

That said, the move up may have been too much too fast. The KasePO and Stochastic are in overbought territory and the move up is due for a correction soon. In addition, the market will need to close over the perpetual’s $2.495 swing high to definitively overcome this important resistance level.

Odds ultimately favor at least $2.57, especially upon a close over $2.495. However, today’s evening star setup and failure to close over $2.495 indicate a correction to $2.42 and possibly $2.35 should take place before $2.57 is overcome.

For the past few weeks, WTI crude oil has been trading in a tight range as it tries to sort through recent events and fundamental factors. Reports indicate Monday’s close at a 10-month high was due to concerns over continued supply disruptions and speculation that the Federal Reserve will not raise interest rates this month.

From a technical perspective, the recent wave formations show that prices are poised to rise to targets above $50.0 over the next few days before reaching the next major decision point in the mid-$50s. July WTI closed above the 0.618 projection of the wave up from $47.26 on Monday. Waves that overcome the 0.618 projection typically extend to at least the 1.00 projection, in this case $50.7. Therefore, odds favor a test of $50.7. A close over $50.7 would call for $51.8 and possibly higher this week.

Support at $48.4 should hold. This is the 0.618 projection of the wave down from $50.21. It is also near the 62 percent retracement of the move up from $47.75 to $49.9. A close below $48.4 would call for a test of $47.5, which is near the bottom of the recent trading range. A close below this would open the way for an extended correction to $46.2 and possibly lower.

Prompt month natural gas futures have risen just over 20 percent after the June contract’s expiration last Thursday. Reports indicate traders are expecting increased demand for the fuel due to warmer than normal summer weather in coming weeks. Technical factors have also turned positive and call for rising prices to challenge and likely overcome the 2016 highs made in early January.

The technicals turned positive last week, ahead of the June contract’s expiration, when July natural gas held crucial support at $2.13 on a closing basis. This was the 62 percent retracement of the move up from July’s $1.939 contract low to $2.427. The spread between June and July had weighed on July, but once June expired, July was primed to rise to challenge key resistance levels this week.

Tuesday’s close over $2.22 opened the way for key resistance at $2.38. This is the 0.618 projection for the wave $1.939 – 2.427 – 2.08. Waves that meet the 0.618 target normally (75-80 percent of the time) rise to at least the 1.00 projection. Therefore, now that $2.38 has been met, odds ultimately favor at least $2.57, the 1.00 projection.

That said, the confluence of targets near $2.38 indicates it may hold, at least initially. Any move down at this point is likely corrective of the move up, and a pullback should hold $2.27 and no lower than $2.20. Ultimately, we expect July to close over $2.38 and rise toward $2.57 within the next few weeks.

The spread between the June and July contracts ahead of June’s expiration on Thursday has weighed on the front of the market. However, July natural gas challenged crucial support at $2.13 Wednesday and held this level on a closing basis while June stalled again near key support at $1.95. The longer-term is beginning to look more positive for natural gas, and once June expires, July is poised to rise toward key resistance at $2.31.

Wednesday’s close over $2.17, the midpoint of Tuesday, was positive for the near-term. Tomorrow, look for July to test $2.21. A close over this would then call for $2.25 and $2.31. Overcoming $2.31 would open the way for an extended move higher.

Trading will likely remain choppy for the next few days, especially ahead of the holiday weekend, and $2.13 is still crucial support. It is in line with projections for the waves down from $2.427 and $2.327. It is also near the 62 percent retracement of the move up from $1.939 to $2.427 and is the close of May 18. A close below $2.13 would call for $2.08 and possibly $2.00. July might test a bit lower, but we still do not see evidence that July will fall lower than $2.00.

Reports indicate traders and investors have been focused on the return of crude oil from recent worldwide supply disruptions, primarily in Canada and Nigeria, in addition to swelling output from Iran. The rising U.S. dollar has also put bearish pressure on prices after the Fed’s latest policy meeting notes suggested a June rate hike possible.

From a technical standpoint, WTI reached significant targets just below $50.0 late last week before forming daily bearish divergences and daily hanging men. These factors indicate the move up is exhausted. However, so far, July WTI’s decline from $49.56 has been extremely choppy and is most likely corrective.

The correction has held the 38 percent retracement from $43.65 to $49.56, but is positioned to extend a bit lower. There is highly confluent support at $46.8, which will likely be met before the move up continues. A close below $46.8 would call for an extended correction to $45.6.

That said, the move up from $47.4 on Monday shows that prices should test $48.6 early Tuesday before attempting $46.8 again. This level should hold, but a close over $48.6 would open the way for $49.2. A close over $49.2, would indicate the downward correction is most likely over and call for $50.2 and higher.

In summary, look for a test of $47.4 followed by $46.8. A close beyond either of these levels will give the market a better sense of near-term direction and how low the correction will extend before prices ultimately turn higher again.

Supply disruptions due to wildfires in Alberta and militant attacks in Nigeria were reportedly offsetting rising stockpiles of crude oil and surging OPEC output. However, those factors seem to be easing, and may not have as much of an impact on supply as originally indicated.

U.S. crude inventories reached their highest level since 1929, but rig counts continue to decline and U.S. output reportedly dropped the most in eight months during the week ended April 29.

Some analysts and traders believe the move up may have been too much too fast, and that the market is taking a much needed breather after rising four weeks in a row prior to last week. Sentiment is also becoming more negative, indicating the move down should extend.

June WTI crude oil challenged key resistance at $46.1 a few times over the past several days. This level has held so far, and should continue to hold as the corrective move down extends. The wave formations down from $46.78 and $46.07 indicate June should decline to at least $42.5. This is a confluent wave projection and the last major swing low. A close below $42.5 would call for $42.0 and lower.

That said, at this point, we do not foresee that prices will fall apart. We expect trading to remain choppy. Look for $44.3 to hold upon a test of resistance early tomorrow before the decline continues. Crucial resistance for tomorrow is $44.9. We doubt prices will rise this high unless spurred by random events. Key resistance remains $46.1. A close above $46.1 would indicate the correction is over, and in turn, open the way for the next leg higher.

Natural Gas Forecast: Overdue Correction Poised to Extend

Negative Factors

Positive Factors