Natural Gas Prices Face Worst 2-Month Drop Since 2008, Where to?

Natural Gas, Head & Shoulders, Doji – Technical Outlook:

• Natural gas prices set for worst 2-month drop since 2008
• Bearish Head & Shoulders remains a key technical driver
• Daily chart reveals Doji candlestick pattern at support

Weekly Chart – Worst 2-Month Performance Since 2008?

Natural gas prices fell for a 6th consecutive week, marking the longest losing streak since the end of September. The commodity is down about 36.3% in January, the worst month since December 2018. In fact, if you look at a 2-month window, this is the worst 2-month performance since 2008! Anticipated mild weather conditions in the United States for February and rising inventories are playing key roles.

The commodity continues to extend losses after confirming a breakout under the December 2021 low at 3.536. That has exposed the 2020 bottom, which is a range between 1.44 and 1.61. Natural gas also continues to head in the anticipated direction of a bearish Head and Shoulders chart formation, which was put into play back in late December.

Chart Created Using TradingView

Daily Chart – Doji in Focus as Prices Test May 2021 Low

On Thursday, natural gas left behind a Hammer candlestick pattern. However, this was invalidated after prices continued lower on Friday. The commodity now gives us a Doji candlestick – see the chart below. Like the Hammer, this is a sign of indecision. While this may not necessarily mean that a reversal is due, it will be key to watch price action in the days ahead.

Upside follow-through after the Doji could open the door to a pullback, placing the focus on the 20-day Simple Moving Average (SMA). But, getting there entails rising back above the May 2021 inflection point and the December 2021 low at 3.15 and 3.52, respectively. At that point, the moving average could reinstate the downside focus.

If not, the falling trendline from August – red line in the chart below – is maintaining the overall downtrend. As such, there is plenty of room for near-term noise before prices could resume lower. Immediate support is the May 2021 low at 2.832. A confirmatory downside breakout exposes the 100% Fibonacci extension level at 2.326.

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX