Bearish Signs Stack Up

There are several short-term bearish signs in recent price action. The dip below the $3.42 higher swing low earlier today triggered a bearish reversal of the short-term uptrend. Yesterday’s low hit support at the 38.2% Fibonacci retracement and stopped, before closing the session there. That level was busted earlier today. Also, the light blue line on the chart shows price levels from the anchored volume weighted average price line (AVWAP). It had been acting as support since the recent swing low but that changed when Wednesday’s session closed below the line for the first time.

Resistance Holds at Neckline of Topping Pattern

Let’s consider the head and shoulder pattern that formed at the most recent top and the behavior of the price of natural gas since then. Following a drop below support at the neckline of the formation the price of natural gas will establish a counter-trend rally to test prior support levels as resistance. The neckline of the pattern is one significant area to consider.

The recent short-term trend high of $3.73 from Monday completed a successful test of resistance around the neckline. And the price area around the neckline was also marked by several other indicators, including a 61.8% Fibonacci retracement, the 50-Day MA, and an AVWAP line from the peak in March. Other than a quick rebound following the initial breakdown of the topping pattern, the recent advance was really the first bullish counter-trend rally. If that is the case, then the current decline could surprise to the downside.

Eyes on $3.23

If the 50% retracement fails to reverse the slide, the 61.8% Fibonacci retracement at $3.23 becomes the next lower target. Notice that the dark blue 200-Day MA is rising and heading towards the 61.8% level. Together, they could create something of a magnet for price. However, a sustained decline below the 50% retracement would happen first, and there is a risk of that now.

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