Has The Basing Setup In Natural Gas Completed?
Chris Vermeulen | Aug 27, 2019 07:42AM ET
Back in June 2019, we posted a research article suggesting that natural gas was setting up an extended basing pattern below $2.35, preparing for a seasonal rally that typically initiates in late August or early September. We believe the basing pattern has nearly completed and now is the time to begin positioning for the upside price rally that we think will hit in NG as early a September 5 or so.
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Our original research posts to review:
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June 10, 2019: NATURAL GAS MOVES INTO BASING ZONE
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June 25, 2019: NATURAL GAS SETS UP BOTTOM PATTERN
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Our research tools suggest that September has a 65% probability of rallying more than 6x the historical range. This would suggest a rally potential of more than $2 exists in September for Natural Gas. Our tools also suggest that October has a 75% probability of rallying more than 3.2x the historical range. This would suggest a potential rally of more than $1.20 in October.
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Combine those potential moves and probabilities over a 60-day span and we are talking about a $2.50 to $3.50 potential price rally with a 70%+ historical probability of success.
This Daily Natural Gas Chart highlights the price rotation as price continued to base below the $2.40 level. We’ve also highlighted the basing range as a blue rectangle on this chart. We expect the upside move to begin in early September and to continue to rally towards the $2.75 level before finding initial resistance. It is very likely that this rally will build momentum as we end October and start into September. It will not be “straight up” as we have drawn on this chart.
h3 Weekly Natural Gas chart/h3
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This Weekly Natural Gas chart highlights our longer-term expectations for the price rally. The initial move will likely end just below $3.00 (likely in the $2.75 to $2.95 range). After that level is reached, we expect a bit of resistance as price rotates near the Bullish Fibonacci Price Trigger Level, then rallies beyond it to target levels above $3.65. Once price moves above $3.50, we could experience a price spike as we had in 2018 where price reached as high as $5.00 in Natural Gas. Skilled technical traders could play this move for incredible profits if they time their entries and exits well.
We believe most skilled technical traders that want to avoid massive leveraged risks should consider trading (NYSE:UGAZ) – the 3x Long Natural Gas ETF. Yes, risks still exist in this trade as any further downside price rotation before a rally begins could present a moderate degree of loss. Yet, we believe the upside potential for the rally and the historical data supporting the very strong probability for an upside price rally outweighs the risks at this time. Support near $11 would be our ultimate downside price risk. Any entry below $14 would be acceptable given the current setup and expectations. Immediate upside expectations are for price to move towards the $18 level, then pause before moving even higher towards the $22 to $24 level.
h3 CONCLUDING THOUGHTS:/h3
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Remember, we called this move over 60 days ago and are alerting you to the very real possibility that the basing pattern is complete. We expect the upside price rally to begin very early in September at this point and the timing of this trade seems perfectly aligned with our historical price modeling systems and other predictive modeling tools.
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This could be one of the best short term trades going into the end of 2019. You won’t want to miss this one.
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Check out these exciting that we will be sharing.
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In short, you should be starting to get a feel of where commodities and asset class is headed for the next 8+ months. The next step is knowing when and what to buy and sell as these turning points take place, and this is the hard part.
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