Natural Gas – Inverse H &S

A lot of North American natural gas producers had a pop last week and we wondered if the advance just a sucker rally or, are we into the early stages of a new bull market in the natural gas complex?

Our weekly plot of a continual the natural gas (NYMEX) futures contract displays an inverse Head & Shoulders (H&S) pattern along with a relative perform spread vs. the price of crude. It is important to see there are two unrelated studies displaying bullish signals for natural gas  

Just to review some inverse H&S rules

1) The left shoulder (LS) is usually larger in time than the right shoulder (RS)

2) The LS usually is accompanied by higher volume (not shown) than the RS

3) When drawing the neckline always extend it to (2)

4) The initial neckline breakout is measured from the lower RS to the peak at (1)

5) The price will usually decline from (1) back to (2) or support at the neck line.

6) The major move is measured below and above the neckline from the low of the head (H) to the peak at (3)

7) Finally – the bigger the pattern in time the better – this one spans over 6-months.

Next post we look at the ways to enjoy the new natural gas bull and perhaps we can repeat the success we had with the lumber space several months ago    

Natural Gas: A Bull or Bear?

A lot of North American natural gas producers had a pop last week.

The big question here is, was the advance just a sucker rally or, are we into the early stages of a new bull market in the natural gas complex?

Our weekly plot of a continual the natural gas (NYMEX) futures is clean with no technical studies except a relative spread vs. a crude futures contract. Now aside from the current improving relative perform vs. crude, there is a very important reversal pattern which I have not identified.

Two questions: – Can you spot the pattern and what investment decision would best take advantage of this chart? I will refresh in two days.

 PS: Take a look at a Jr. gold miner vs. GLD chart

Basic technical analysis:

Our weekly plot of the NASDAQ Composite is accompanied by two studies, a weekly MACD and a spread vs. the S&P500 smoothed by a 20 period simple moving average.

There are four distinct patterns here

(A) Note the series of lower highs of the MACD as set out in the upper plot.

(B) Note the series of higher highs of the NASDAQ Composite center plot

(C) Note the rising wedge as contained between the two rising and pinching trend lines

(D) Note the declining spread slipping under the 20 period smoothing illustrating poor performance relative to the S&P500.

In summary we have negative divergence between (A) and (B) in other words a series of higher highs on the index and a series of lower highs on the MACD. Also the rising wedge at (C) is bearish and finally the declining performance relative to the S&P500 is a negative for this important index. Don’t shoot the messenger.