Natural Gas Revisit - Market Analysis for Jun 18th, 2012

My near- and intermediate-term pattern, momentum and volume work argue strongly that natural gas in the grasp of a very powerful countertrend advance. The chart on nearby natural gas futures shows that more than likely nat gas is nearing the completion of a major base pattern that has the potential to signal the initiation of a new bull market (as difficult as that might be to believe).

Let's notice that nearby natural gas has carved out a 6-month accumulation pattern, with the price structure pushing up towards a confrontation with its key intermediate resistance plateau at 2.76-2.85. If hurdled and sustained, this will trigger upside potential into the 3.400-3.600 target zone thereafter.

Should such a scenario unfold, my suspicion is that it will coincide with, and represent a reaction to, an unambiguous shift in the perception of the underlying supply-demand "balance" that for the first time in years suggests a reversal in an abundant and climbing supply of natural gas. From an intermediate term perspective, only a sudden downside reversal that breaks below the recent low of 2.1680 will invalidate the current technical set-set.

Traders of natural gas may want to look at the U.S. Natural Gas Fund ETF (UNG), which today has surged to a new recovery high at 18.17 off of the June 13 low at 15.18. I would be raising my protective stops to just under 17.00 now, looking for upside continuation towards a confrontation with the Feb.-June down trendline, now at 18.90.