Is Natural Gas Forming a Floor?
After the dramatic decline since August 2022, the market might be entering a transition phase in which the trend goes from down to a period of relative stability.
Over the course of approximately three years, natural gas has exhibited exceptionally high levels of volatility. Since April 2023, however, NATGAS prices have embarked on a phase of stability. Could this be the commencement of a solid base?
How We Got Here
- June 2020: The shutdown measures to control the pandemic caused a severe economic contraction worldwide. As a result, natural gas prices fell to near $1.5 in June 2020.
- From July 2020 to August 2022: NATGAS experienced a remarkable uptrend, which gained even more momentum following the Russian assault on Ukraine in February 2022. In August 2022, the price surged to an unprecedented peak, surpassing $10.
- From September 2022 to March 2023: The price displays a relentless collapse for over six months. The strong downward trend persists until a stabilization phase around the $2 mark begins in April 2023.
- Since April 2023: Natural gas prices stall. Then, despite showing signs of a potential shift in favor of buyers, the reversal remains uncertain.
The sentiment in the natural gas market has experienced exaggerated and wild swings since the pandemic.
As a short-term strategy during this phase of stabilization, our plan is to buy after periods of selling pressure and sell near the recent highs.
Is NATGAS Forging an Extended Base?
Although NATGAS has been consistently printing higher highs and higher lows since April 2023, the upward movement has been relatively moderate until now. In fact, the recent price action can be characterized as undetermined. It can also be viewed as a combination of a range-bound and a moderate uptrend scenario.
After the dramatic decline since August 2022, the market might be entering a transition phase in which the trend goes from down to a period of relative stability.
Is Buying Natural Gas a Wise Decision?
Typically, a situation like this presages the formation of a prolonged base. If this scenario is confirmed, the longer the base, the more robust the scaffolding on which an uptrend can be built.
At what point might a potential rally begin? Considering that an upcoming recession may loom this year or next, making sensible predictions becomes challenging. We must not forget that during periods of economic recession, it is common for commodities to experience downward pressure. Typically, the energy and metal sectors are the most negatively impacted during such times.
If natural gas confirms an upward breakout, we can buy. However, be watchful of recession signs. It is crucial for us to remain vigilant so that we can respond to potential dangers once the anticipated economic downturn begins to materialize.
