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Is Natural Gas Heading for a Breakdown?

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Natural gas futures

On July 26, 2017, natural gas (UNG) (FCG) September futures fell 0.6% and closed at $2.91 per MMBtu (million British thermal units). On July 19–26, 2017, natural gas September futures fell 4.6%. Milder weather forecasts were behind the fall in natural gas prices. During this period, US crude oil (USO) (DBO) September futures rose 3%.

In the trailing week, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) rose 0.2% and 0.3%. The S&P 400 Mid-Cap Index (IVOO) is another US equity index that has some exposure to the energy sector. IVOO fell 0.2% during this period.

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Major technicals

On July 26, 2017, natural gas (BOIL) (FCG) active futures were trading 2%, 3.8%, 5.2%, and 6.2% below their 20, 50, 100, and 200-day moving averages, respectively. Natural gas prices fell sharply after they failed to cross the 50-day moving average and 100-day moving average on July 19, 2017.

On July 21, 2017, natural gas futures fell below their 20-day moving average. Not only does natural gas trading below all of these moving averages show weakness in prices, but all of these moving averages can act like upside resistances for the commodity.

For natural gas, the 50-day moving average is 2.7% below its 200-day moving average. The difference between the two moving averages has expanded in the last few trading sessions. It could be a bearish signal for natural gas and natural gas–weighted stocks such as Chesapeake Energy (CHK) and Gulfport Energy (GPOR).

On July 27, 2017, inventory data would be a key fundamental to watch. If the data are bearish, natural gas prices could be set for a breakdown.

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