Natural Gas Prices Declined for the Third Day: What’s Next? (Part 3 of 3)

(Continued from Part 2)

Three black crows

Natural gas for June futures contracts showed the emergence of the three black crows candlestick pattern on May 7, 2015. Prices declined for the past three days due to mounting natural gas inventories and mild weather estimates. Warmer weather and demand will be the key drivers of natural gas prices in the short term.

Support and resistance

The current momentum seems to be reversing. Natural gas prices could hit the support of $2.50 per MMBtu (British thermal units in millions). Mild weather estimates and oversupply factors will drive natural gas lower. In contrast, warmer weather estimates could push gas prices higher. The key resistance is seen at $2.90 per MMBtu. Gas prices tested this level in March 2015.

Gas prices closed above their 50-day moving average of $2.732 per MMBtu. The three black crows candlestick pattern suggests a possible reversal of the natural gas price trend. This pattern is a bearish reversal pattern. It indicates weakness in the trend.

ETFs’ performance—like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG)—depends on the price movement of natural gas prices. Lower natural gas prices mean relatively lower returns.

It also impacts oil and gas companies like Cimarex Energy (XEC), Bill Barrett (BBG), and Laredo Petroleum (LPI). They account for 3.99% of the Spider Oil and Gas ETF (XOP). These stocks have a gas production mix that’s greater than 40% of their total production.

Browse this series on Market Realist:

• Part 1 - Natural Gas Prices Decline on Massive Stockpile Data

• Part 2 - Supply and Demand Imbalance: Natural Gas Prices Are Pressured