Natural Gas’s ‘Death Cross’ and Why the Bear Market Isn’t Far

On July 5, 2017, natural gas (UNG) active futures fell 3.8% and settled at $2.84 per MMBtu (million British thermal units), their lowest level since March 8, 2017. Natural gas prices fell due to mild weather and also likely due to a spillover of negative sentiments from the crude oil market.

Apart from these factors, the rising rig count and rising natural gas inventories are two other important factors that could impact natural gas prices. We’ll discuss these factors in detail throughout this series.

Between June 28 and July 5, 2017, natural gas August futures fell 8.2%. US crude oil August futures rose 0.9%, during the same period. The Energy Select Sector SPDR ETF (XLE) rose only 0.5% in the week ended July 5, 2017. Mixed sentiments in energy commodities and the equity market may have affected XLE’s price performance.

The Dow Jone Industrial Average (DIA) rose only 0.1%, while the S&P 500 Index (SPY) and the S&P 400 Mid-Cap Index (IVOO) fell 0.3% and 0.2%, respectively, in the week ended July 5, 2017.

Natural gas active futures moved below their 100-day and 20-day moving averages on June 29, 2017, and July 3, 2017, respectively. On July 5, 2017, natural gas active futures were 5.1% and 7.2% below these two moving averages.

More importantly, natural gas active futures’ 50-day moving average fell below the 200-day moving average on July 5, 2017. In technical terms, this crossover is called a “death cross.” Usually, such a crossover is followed by further weakness and can pressure prices. Take, for example, what happened with crude oil.

Natural gas active futures are 17% below their 2017 high. A further fall of just 3% would take natural gas into a bear market.