By Mike Paulenoff
From a technical perspective, the big-picture natural-gas chart offers some fascinating observations. First, let’s notice that the price structure once again has hurdled its three-year downtrend line, which cuts across the price axis at 3.710 in the nearby futures. The last time it attempted to break out — in November — the upside piercing (with a high of 3.922) turned out to be a bull trap ahead of a 22% correction (creating a “W” bottom with lows of 3.087 on Jan. 9 and 3.125 on Feb. 15).
This time, however, the upside breakout remains viable, and also is confirmed by daily (RSI) momentum.
Second, all of the action from November to the present has the right look of a high-level corrective accumulation pattern. This is similar to, though understandably smaller than, the major-bottoming pattern carved out between January and June 2012, which initiated a climb that doubled the price of natural gas.
Finally, since Warren Buffett commented on CNBC this past March 4 that he supported natural gas conversion for his BNSF locomotives because of the huge disparity between natural gas and oil prices, natural-gas prices have been a more strongly “bid” market.
My work argues that the current advance is heading for 4.00-4.16 before the next breather.
See chart illustrating technical pattern of natural gas futures.