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.

During the calendar month of March the April natural gas futures contract has traded in a range bound between $2.64 and $2.87. Most fundamental and technical factors are still negative for the long-term. The move up at this point is still corrective and will only delay the inevitable decline that is ultimately coming. However, late winter weather concerns continue to support the market and have rattled the nerves of traders enough over the past two days to push natural prices above $2.87 to challenge key resistance at $2.89 ahead of tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update.

The market is hinting that a bullish EIA update may be expected, but if the number is disappointing, this natural gas price rise will collapse in upon itself and could be the catalyst the finally push prices lower to challenge key support targets.

The wave formations up from $2.589 (not shown), $2.641, $2.662, and $2.674 all show that $2.89 is a confluent wave projection. It is also the 62 percent retracement from $3.045 to $2.641. The confluence of wave projections and retracements at $2.89 make it the key decision point for an extended correction to at least $3.00 and possibly $3.07. At the time of this analysis, natural gas prices are trading right at $2.89, but they will need to settle above this to open the way for $3.00 in early trading tomorrow before the EIA update is released. Unless the EIA report is extremely bullish, it is doubtful that prices will settle above $3.07 in coming days.

Look for support at $2.78. This is in line with the $2.775 swing low, the midpoint of the recent range between $2.64 and $2.87, and the midpoint of the March 12 and 17 candlesticks. A close below $2.78 would indicate the move up has failed to extend once again.

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NY Harbor ULSD futures fell to a new intraday low for the eighth session in a row, but formed a bullish morning star setup and hammer. These are bullish reversal formations, but in this case it is more likely that a subsequent move up will be a correction rather than a reversal. In addition, the decline stalled near the 62 percent retracement of the move up from 154.8 to 197.86, which supports the likelihood of a correction. However, the KasePO and KaseCD show that the decline should ultimately continue. Look for resistance at 178.7 and no higher than 186.0 to hold.

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Natural gas prices are still oscillating in the corrective range between approximately $2.60 and $3.00. Early in the week it looked as though natural gas prices were ready to continue the decline. However, while there is little doubt that the long-term bias is negative, Wednesday’s price rise has called into questions how soon natural gas prices will fall to new contract lows.

Monday’s gap from $2.783 was filled early Wednesday and then April futures overcame the 0.618 projection at $2.80 for the wave up from $2.641. The $2.80 level was also near the 62 percent retracement of the decline from $2.87 to $2.662. The confluence of the wave projection and retracement at $2.80 makes it a crucial decision point for the near term outlook. Should natural gas prices close over $2.80, look for at least $2.89 because it is the 1.00 projection. This level is most important because it is also the 62 percent retracement from $3.045 to $2.641, the 0.618 projection for the wave up from $2.589 (not shown), and is in line with last weeks $2.87 swing high. A close over $2.89 would open the way for an extended correction and would further delay a decline to new contract lows.

The first class long permissions (blue dots) for the Kase Easy Entry System (KEES) indicate the move up will likely continue, and that $2.89 should at least be tested tomorrow. However, the bearish KCDpeak (red K above 2.848) indicates the move up is already overbought on the 120-minute equivalent Kase Bar chart. A move above $2.848 would negate the KCDpeak, and as long as the KEES permissions remain long (blue dots) the near-term bias will remain positive.

Look for support at $2.73. A close below this over the next few days would shift the near-term bias back to negative and call for the $2.641 swing low to be challenged.

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April gasoline prices fell for the fourth day in a row, but held support at 185.0. The bearish KaseCD divergence and underlying short permissions (red dots) indicate the decline should continue to 180.0. A normal correction will hold 180.0 because it is the 38 percent retracement of the move up from 149.64 and the 1.618 projection for the intraday wave down from 198.93 (not shown). A close below 180.0 would call for the 62 percent retracement at 168.5. This level must hold for gasoline prices to retain any chance at a continued recovery in the near term.

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Cold weather continues to support natural gas, but the wide sweeping frigid conditions have not been enough of an influence to drive prices higher. Fundamental and technical factors leave little doubt that the outlook for the next several months is bearish, but for now, natural gas prices are stuck in a trading range bound between approximately $2.55 and $3.00.

Prices fell last week after the disappointing U.S. Energy Information Administration (EIA) Natural Gas Weekly Update, and a swing low of $2.641 was made on Tuesday. The $2.80 midpoint of last Thursday’s candlestick held Wednesday morning, which may be an early indication that another disappointing EIA update is expected tomorrow. The $2.80 level is confluent resistance because it is also the 38 percent retracement of the decline from $3.045 to $2.641.

There are a few short term positive factors (green arrow and triangle) triggered by KaseX on the $0.05 KaseBar chart, and a close over $2.80 would open the way for key resistance at $2.90. The $2.90 level is the 62 percent retracement from $3.045 and the 0.618 projection for the wave $2.589 – 3.045 – 2.641. This is crucial, because waves that overcome the 0.618 projection typically extend to at least the 1.00 projection, in this case $3.10. We expect $2.90 to hold, but a close over this level would shift near term odds in favor of another attempt at $3.10 and higher.

First support is $2.70, and a move below this would call for the $2.641 swing low and $2.589 contract lows to be challenged. The most important target is still $2.55, because the technical show that it is the gateway objective for a decline into the low $2s. It will likely be at least a few more weeks before prices close below $2.55.

So for now, our analysis leads us to believe that a near term test of resistance at $2.80 and possibly $2.90 will take place, but that $2.90 will hold and prices will continue to oscillate in a sideways range.

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Since late 2011 the Korean Stock Exchange (KOSPI) has oscillated in a narrowing range, now nearing its apex, which means a breakout is expected within the next quarter or two, perhaps sooner.

The pattern began after 2011’s decline to 1644.11. The entire pattern could be the middle “B” wave of a downward ABC correction, or, alternatively the first wave of a renewed push higher. This will remain an open question until there’s a break out, but recent technicals call for a test the formation’s upper trend line. So odds may indeed favor a break higher.

KOSPI Monthly

The first positive factor is a bullish piercing pattern that formed after a test of the pennant’s lower trend line, when January opened below December’s close and closed above December’s midpoint. If February, now trading slightly over December’s 1971.95 open, closes above that point, the bullish tone will be confirmed.

The next bullish factor for this KOSPI forecast can be seen on the daily chart, in red. This is a five-wave trending pattern that met a major target at 1970.27 (the top of Wave 3), and is now poised to extend to key endpoint targets for Wave 5, at 2039.6. Early in the move up a strong buy signal called a pierced dart (two green up arrows and yellow triangle) triggered on the KaseX trading study.

KOSPI Daily

Hitting 2039.6 would be extremely important because the KOSPI Index would have overcome the top of Wave B, marked in blue. To be considered complete, waves must extend to at least their 0.618, or smaller than, projection. This value was met at 1876.27. Kase’s studies show that just 13 percent of waves stall at this level, the remainder go on to meet their equal to, or 1.0 projection. Overcoming 1994.82 would wipe out Wave C. At that point, the entire wave down from 2093.08 would have to extend down as a whole. Alternatively the wave would be considered complete at the minimum extension, potentially a bearish technical failure.

A bearish failure often results in a sharp rise. Therefore, overcoming 1994.82 could be the catalyst that the KOSPI Index needs to make a decisive upward move.

2039.6 has about 2/3rds odds to be met, and would likely trigger connections to 2158.2 from the waves up from 1644.11. At that point, the resistance line will have been broken. Waves up from 892.16, which also point to 2158.2, might then extend to higher targets at 2336.2 and 2484.3.

In summary, while KOSPI has been oscillating in a neutral range, 2039.6 is the key for an upside test. There could be a pullback at 2039.6, but a sustained close over this, calls for 2158.2, above the upper trend line. A sustained close over this would confirm a valid break higher and open the way for the 2336.2 and 2484.3 targets.

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Natural gas’s recent upward correction has been driven by cold weather, and still has a modest chance to extend. However, the key question that should be asked is how long will natural gas prices be able to sustain upward momentum once weather moderates? Several technical factors are already showing that the move up may be over, and that a continued decline may take place sooner than some might have expected.

The move up stalled at $3.045 on Monday morning. From a technical standpoint, this was a bit disappointing because the wave $2.589 – 2.891 – 2.681, which had previously met it 1.00 projection, failed to meet its 1.382 target at $3.098. This was especially negative because Monday’s decline and close below Friday’s $2.91 midpoint triggered a bearish Dark Cloud Cover (marked by the Kase Candles indicator’s pink dot and DarkC label). Dark cloud covers are reversal patterns, and the formation would be confirmed upon a close below Friday’s $2.852 open.

Subsequently, the attempted moves up on Tuesday and Wednesday have failed to close over the $2.94 midpoint of Monday. A close over $2.94 would negate the dark cloud cover, and open the way for another attempt at $3.098 and $3.17, the 1.382 and 1.618 targets for the primary wave up from $2.589, respectively. However, the failure to close over $2.94, so far at least, is negative.

The key for the down move will be a close below $2.85. As previously stated, $2.85 is the confirmation point for the dark cloud cover. It is also the 0.618 projection for the wave $3.045 – 2.839 – 2.974. Therefore, a close below $2.85 would call for at least $2.77. In our detailed weekly price forecast, $2.77 was pegged as the major decision point for a continued decline and retest of the $2.589 contract low. As shown by the blue wave extensions, at minimum, a close below $2.77 should clear the way for the 1.618 projection at $2.64.

Unless there is a shock from tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update, it looks as though the move up has stalled, and that major test of support at $2.77 will take place in the next few days. The near-term outlook for natural gas prices is not yet technically bearish, but a sustained close below $2.77 will help to shift the bias strongly in that direction.

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Most technical factors now indicate that WTI’s upward correction has failed and that the near term WTI price outlook is negative again. Monday’s decline broke the lower trend line of a bullish ascending wedge. Formations like this break higher around 75 percent of the time, so failures like this do not generally bode well for a continued price rise.

More importantly, WTI prices are about to take out the crucial $48.2 swing low. This level is important because it is the 1.00 projection for the wave $55.05 – 48.2 – 54.92, the 62 percent retracement from $44.37 to $55.05, and the key swing low for the upward wave formation from $44.37. Taking out $48.2 would call for at least $45.5, and very likely to $43.8 and lower.

The only real hope for a continued WTI price rally in the near term would be for prices to hold $48.2. Look for resistance at $51.0 and $52.5. A close over $52.5 would call for another test of the triple top of $55.0.

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Natural gas’s upward correction has stalled and is oscillating in a narrowing range centered around $2.78. This is a coil formation, which indicates that a breakout move is about to take place. The coil shows undertones of the market’s uncertainty between the balance of long-term bearish fundamentals and recent wide sweeping cold weather that has dominated headlines for the past few days. Typically, prices will break in the direction that the market entered the pattern, in this case up. However, coils are not statistically reliable continuation patterns like flags, pennants, or triangles. Therefore, caution is warranted for both bulls and bears headed into tomorrow’s U.S. Energy Information Administration (EIA) Natural Gas Weekly Update.

A break higher out of the coil and an extended correction would be confirmed by a close over the confluent $2.85 level. The confluence is the crucial factor behind this level because $2.85 is the 0.618 projection for the wave $2.567 – 2.883 – 2.656 and the 38 percent retracement from $3.299 to $2.567. A close over $2.85 would call for $3.00, which is also confluent because it is the 1.00 projection and the 62 percent retracement.

A break lower would be triggered upon a close below $2.73. This is the 0.618 projection for the wave $2.883 – 2.656 – 2.868, and in turn connects to $2.64 and then $2.55 as the 1.00 and 1.382 projections. Both targets are in line with major swing lows at $2.656 and $2.567, so a break lower out of the coil would have major bearish ramifications for the near term.

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Natural gas’ decline stalled at $2.567 on February 6. This was near the very crucial bearish decision point of $2.52. Subsequently prices have risen to $2.857. The market is likely settling into a range that is being supported by external factors (i.e. cold weather), but is searching for the upper end of this range.

A confirmed daily morning star and a few weak momentum signals (white arrows) on KaseX indicate the upward correction should extend. However, the correction met and held the 38 percent retracement from $3.299 to $2.567 at $2.85. In addition, KaseX has already generated a short warning (yellow down triangle), and prices are sitting just below the crucial $2.79 level. The $2.79 level has been major support for week, and it is now key resistance. It was tested one and held already on February 3, so a close over this would be positive for the near term.

Overall, the charts and technical factors discussed indicate that traders are anticipating a bullish U.S. Energy Information Administration (EIA) Natural Gas Weekly Update tomorrow. However, there is some uncertainty to this move, which is why prices backed off the $2.857 swing high morning and are hovering around $2.79.

A close over $2.79 would open the way for $2.85 again, and likely $3.02, which is the 62 percent retracement from $3.299. The $3.02 level should hold unless tomorrow’s EIA number is much more bullish than anticipated. A close below $2.79 would call for $2.68 to be challenged. This is the 62 percent retracement from $2.567 to $2.857. A close below this would then call for another test of the $2.52 decision point.

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Midweek Natural Gas Forecast – March 18, 2015