On January 23, the natural gas market went from stone cold to steaming hot, with prices enjoying a near 8% intraday surge. Today I sit down with EWI's Energy Specialty Service editor Steve Craig to discuss what's behind the energy's magnificent rise.
Nico: Good afternoon, Steve. So, according to the mainstream financial experts, ONE main event lit the fire beneath natural gas prices. Writes one January 23 news source:
"Natural gas prices rallied after US gas giant Chesapeake Energy said it planned to reduce production levels, sparking a massive short-cover rally." (Associated Press)
How did this "fundamental" news event factor into your near-term analysis of natural gas?
Steve: At best, the release of the Chesapeake Energy Corp. announcement did coincide with the start of the rally. However, Elliott wave analysis and technical methods enabled me to anticipate a turn in natural gas at some point BEFORE the Chesapeake news went viral.
Nico: I actually dug into our archives and found the
January 20 Energy Specialty Service's Natural Gas "Daily" analysis. There, you presented the following chart of the market alongside this bullish insight:
"This week's drop below 2.409 meets the minimum downside price objective for the decline but the structure looks incomplete... The market remains quite oversold and due for a healthy advance."
Nico: I went ahead and labeled "Five-Wave Decline" on the chart to emphasize the dominant Elliott structure that you identified in the chart. Could you elaborate on the pattern at hand?
Steve: The Elliott wave model includes two modes of wave progression: Five-wave moves, called impulse patterns, AND three-wave moves, called corrective patterns. Here is a classic impulsive downward formation from early November to the January 23 low.
Nico: Are there any specific rules that pertain to impulse patterns?
Steve: Yes. There are THREE to be exact:
- Wave 2 never moves beyond the start of wave 1
- Wave 3 is never the shortest among waves 1, 3, and 5
- Wave 4 never enters the price territory of wave 1.
Nico: Your bullish near-term call for natural gas was also bolstered by a number of other technical indicators. What were they?
"The RSI [Relative Strength Index] and stochastics are both at, or very near, the lowest levels in a year. But the more telling tale is the market's position in relationship to the Bollinger Band. Rarely does it exceed the outer boundaries. This market is ripe for a rally."
Nico: So, now that natural gas prices have indeed seen said rally, what signs are you looking for to signal when and where the uptrend will end?
Steve: Right now,
Energy Specialty Service's Natural Gas "Intraday" analysis reveals specific resistance and support levels that help navigate the degree and duration of the move.
EWI's intensive Energy Specialty Service brings you timely, actionable forecasts for crude oil, nat gas and other global energy markets. Editor and 30-year energy market veteran Steven Craig lives and breathes these markets all day, every day; let him show you what he knows.