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.

By Dean Rogers

As we stated last week, the natural gas call is extremely tight right now. The market can only tell us what it knows about itself, and right now the market is not sure what it knows.

The move up from $2.188 stalled at $2.398 on November 6, and since then prices have worked their way lower in an extremely choppy manner to test major support at $2.25. This level held on today’s close, so technically prices are still trading within the range.

The market is waiting on cold weather to push it higher, but today’s price action did not help short-term bulls. It will eventually get cold and prices will rise, but today’s decline to $2.25 puts odds slightly in favor (around 60 percent) of a decline to test least $2.20 and possibly $2.12 over the next few days.

That said, $2.25 is an extremely important and highly confluent wave projection and retracement that has been tested a few times and has held on a closing basis since the move up from $2.188 began on October 30. Therefore, caution is warranted, and given the circumstances, we would not be at all surprised to see $2.25 continue to hold.

From a trading strategy standpoint, this is a time that we would normally recommend sitting on the sidelines for a bit while waiting for a more concise direction and break out of the $2.25 to $2.37 range. Upon a close below $2.25 or above $2.37, a trade may be taken upon a confirming long or short signal from indicators like Kase StatWare or KaseX. Shorter bar lengths are also recommended because they will help limit risk and should be used to pinpoint entries and exits and determine stop levels until there is a close either below $2.12 or above $2.48. At that point a clear long-term trend will have been established and trades may then be scaled to longer bar lengths with wider stops.

This is a brief natural gas forecast ahead of tomorrow’s EIA report. 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.

By Dean Rogers

WTI stalled near $48.0 as we expected in our weekly Crude Oil Commentary and the sustained close below $44.7 calls for a test of key support at $43.2. This is a confluence area that is near the 0.618 projection of the wave $51.42 – 42.58 – 48.36. A close below $43.2 would confirm the negative outlook and open the way for a continued decline.

The Kase Easy Entry System (KEES) confirms the negative bias. Today’s pink dot indicates that the majority of momentum indicators are permissioned short on the daily chart and that the synthetic three-day filter is also permissioned short.

That said, the shorter intraday bar lengths are showing that the decline from $48.36 is a bit overextended, exhausted, and due for a correction. The correction will most likely take place once $43.2 is met. First resistance is $44.5. Key resistance is $45.4, the 38 percent retracement from $48.36 to $43.64. Both levels are in line with the opening prices of the last few days. A close over $45.4 would call for an extended upward correction and a likely trading range for the near-term.

This is a brief analysis and crude oil forecast 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, please sign up for a complimentary four week trial.

By Dean Rogers

Natural gas cautiously rose to $2.317 to fulfill the smaller than (0.618) projection for the wave $2.188 – 2.336 – 2.231. Typically, a move to $2.38 would now be expected because waves that meet the 0.618 projection normally extend to at least the equal to (1.00) projection. The pullback to $2.255 is a bit worrisome, but until the $2.231 swing low is taken out odds favor of a move to $2.38. This is a crucial target because $2.38 is the 38 percent retracement from $2.78 to $2.188 and makes a connection to $2.48 where last week’s gap would be filled.

KaseX warned that the decline from $2.317 would extend (yellow triangle), and as stated, support at $2.25 is already being challenged. A move below $2.231 would take out the wave up from $2.188 and its projections to $2.38 and higher. This would in turn shift odds back in favor of a decline to $2.11 to fulfill the requirements of the textbook five wave pattern down from $3.391 as discussed last week.

By Dean Rogers

Last week several top refiners reported a jump in their third quarter earnings compared to a year ago. Attractive crack spreads and refining margins due to lower oil prices and healthy demand for gasoline have helped refiners pump in profits. In addition, last week’s rise in oil prices, which was partially attributed to a quick turnaround in the refinery maintenance season, has helped to stabilize gasoline futures and open the way for a test of key resistance near $1.43.

December gasoline futures have oscillated in a trading range bound between approximately $1.26 and $1.43 since early September. The most recent move up from $1.26 overcame resistance at $1.36 and is now poised to test the upper boundary of the range at $1.43. This is the 2.764 projection for the small wave $1.2621 – 1.323 – 1.2627, the 0.618 projection for the wave $1.1756 – 1.4604 – 1.2621, and the 38 percent retracement of the decline from $1.8392 to $1.1756. There is a good chance that $1.43 will hold, but a close over this would open the way for at least $1.55.

The Kase Easy Entry System (KEES), which is based upon a sophisticated algorithm that accounts for multiple momentum indicators, bar lengths, swings, and bar structure, confirms the positive bias in the near term. The blue dot indicates that the underlying indicators and bar lengths are permissioned for long trades to be taken.

Prices are expected to reach at least $1.43 before another turn lower to test support takes place. For now, look for immediate support at $1.31 and for key support at $1.26. A close below the latter would call for the late August low of $1.1756 to be challenged.

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, please sign up for a complimentary four week trial.

By Dean Rogers

As discussed last week, everyone is looking for the natural gas bottom. I am sure no one wants me to step back onto my “picking bottoms is a dangerous game” soap box, so I will just reiterate that the best anyone can do is identify potential turning points and look to time entries and exits that fit their trading style, risk appetite, and goals.

With that in mind, let’s discuss the potential turning points for natural gas at today’s $2.263 swing low and at $2.11, the latter of which I think is the most likely point for a bottom to be made.

December’s wave structure down from $3.391 has unfolded in a five-wave pattern. We are not Elliott Wave fanatics or strict practitioners, but when a textbook pattern forms we pay attention.

Below are some of the basic Elliott Wave rules we abide by and look for when a five-wave pattern forms.

Basic Elliot Wave Rules, according to Kase:

A five-wave pattern is made up of three impulse waves and two corrective waves
Two of the three impulse waves should be equal in size
The impulse waves, labeled I, III, and V, should break down into five sub-waves.
Wave III cannot be the smallest impulse wave
Waves I, III, and IV should be proportional to one another (0.618, 1.00, 1.382, 1.618, etc.)

For the five-wave pattern down from $3.391 wave I met its 1.618 projection at $2.607 (end of wave III) and trend terminus (2.969³/3.391²) at $2.263 (potential end of wave V). The lowest that wave I projects is $2.12 as the 2.764 extension.

Given the importance of $2.263, the ticks up after the close, and oversold conditions on the KasePO, KaseCD, and slow stochastic, prices might turn higher from this level.

However, at this point there are not two equal waves. At $2.36 waves I and V were equal, but prices fell to $2.263. At $2.10 waves III and V will be equal. Therefore, based upon the basic Elliott Wave Rules, December will likely fall to the confluence point of $2.11 where wave I will have met its 2.764 projection and waves III and V will be equal.

From $2.11 we would expect to see a three-wave correction, and because of the time of year, a significant rally as the market heads into the winter heating season. A sustainable rally will be confirmed by a KasePO PeakOut, KaseCD KCDpeak, and %K over %D crossover as momentum rises out of oversold territory on the slow stochastic.

There are no guarantees that $2.11 will hold over the course of the longer-term, but this has become the most likely point at which a bottom will be made.

By Dean Rogers

December WTI’s wave $39.22 – 50.89 – 44.31, which met its 0.618 projection at $51.42, has been taken out by the $43.64 swing low. Consequently a technical failure of the move up has taken place and odds have shifted in favor of a continued decline. Look for $43.0 tomorrow and very likely $42.5 over the next few days. A close below $42.5 would confirm the negative outlook and technical failure. There is an outside chance that the support trend line will hold. Look for resistance at $45.4 and $46.5.

By Dean Rogers

This is the time of year when everyone is looking for a bottom and pre-winter rally for natural gas. The logic and seasonal timing make sense, but picking bottoms is a dangerous game. Those that successfully time the bottom are more lucky than good. The best that most mere mortals can hope for is to be prepared for the turn so that they can react in an effective manner that fits their goals, strategy, and risk appetite.

This is why it is important to have a forecast and directional opinion (and yes, sideways is a direction) about the market in addition to a set of reliable indicators like Kase StatWare or KaseX to time entries and exits. The forecast is the framework for the market that lets you know where key support and resistance are and when you can expect correction and potential trend reversal. Indicators tell you when to get in, where to place stops, and when to get out.

For instance, $2.40 was major support for November natural gas. This was a highly confluent target, and we had discussed this level as a potential stalling point for many weeks (even months) leading up to the decline to $2.403 on October 2. However, the subsequent move up was shallow, choppy, and corrective. Long trades could have been taken on shorter bar lengths during the corrective move up, but in our detailed weekly forecasts and mid-week blog updates we anticipated another decline and test of $2.40 because the market was struggling to overcome key resistance levels at $2.48 and $2.59.

November fell to $2.41 on October 16 and started to bounce again. The move stalled at $2.50 on Tuesday, October 20 and prices fell to new lows for November and the winter contracts on Wednesday, October 21.

$2.40 has held so far on a closing basis, but a sustained close below this level will open the way for at least $2.33, the 1.00 projection for the wave $2.578 – 2.41 – 2.499 and very likely $2.27. The latter is a confluent objective for the waves down from $2.859, $2.72, and $2.578 making it the next potential point at which a bottom could be made.

Most technical factors are negative and there is little evidence that the decline is going to stall. However, the importance of support at $2.33 and especially $2.27 indicate that we should be prepared for at least another correction and a potential bottom soon. Keep a close eye on your indicators to tell you when to time your entries and watch for closes above key resistance levels to confirm the move down has ended.

For now, initial resistance is $2.45 and key resistance, for the near term, is $2.50.

By Dean Rogers

December WTI’s wave $39.22 – 50.89 – 44.31 met its 0.618 projection at $51.42. This was positive, especially due to the break higher out of the bullish pennant formation. We anticipated the pullback from $51.42, but so far it has been stronger than expected and is poised to test major support levels at $46.0 and $44.3.

Kase’s studies show that waves that meet the 0.618 projection extend to the 1.00 projection 80 percent of the time. This would have pushed prices to $56.0. However, the pullback from $51.42 has been strong and closed below $47.0 support on Monday. Therefore, this may be 20 percent of the time that a wave fails to meet its 1.00 projection.

First support is $46.0, and a close below this would open the way for $44.31. This is the swing low of the wave up from $39.22 and is in line with the 0.618 projection of the wave down from $51.42. Taking out $44.31 would result in a technical failure of the move up and call an extremely bearish outlook for foreseeable future.

Look for immediate resistance at $46.9, $47.6, and then $48.4.

By Dean Rogers

Spot natural gas is still looking a bit unsure of the move up, but the forward months, especially the winter strip, are looking reasonably positive. This likely indicates that a longer-term move up is underway, but for now it is looking like the prompt month could settle into a choppy trading range while it awaits more data (weather) to push natural gas prices higher or lower.

November futures stalled at $2.559 before reaching crucial resistance at $2.57. Tuesday’s bearish engulfing line was followed by a positive move on Wednesday. Resistance at $2.57 should be tested. A close over $2.57 would call for $2.63 which then connects to $2.68. First support is $2.49, but the key level for the near-term is near $2.43. A close below this would confirm the move up has failed and would open way for a new low.

By Dean Rogers

Last week’s break higher out of the bullish pennant was positive and the move up extended to meet the 0.618 projection of the wave $38.51 – $50.04 – 43.71. However the move stalled there, formed a bearish evening star and blow-off high, and then proceeded to test $46.4, the 62 percent retracement of the move up from $43.71.

The market is telling us that it needs more time to sort itself out as it awaits more data. We have stated that the move up would likely be a grind higher, and so far that has been the case.

For now, another trading range will likely form between $46.4 and $50.0. Look for resistance at $47.4 and $48.2.

Should prices fall below the $43.71 swing low the outlook will shift back to negative for the longer-term.

Natural Gas Forecast: Still a Tight Call

Basic Elliot Wave Rules, according to Kase: