One of my favorite things about technical analysis has to be the whole principle of polarity. This study of supply and demand is the beginning of all of my analysis. When prices keep bumping up against a specific price, we know that with each test, there are less and less sellers. Eventually, when sellers dry up (after enough tests), the buyers take over control at that level and prices shoot up. The same thing can be said about support. The more times support is tested, we know there are less and less buyers down there. This is simply due to the fact that at some point, anyone willing to buy at that level has already made their purchase. So when the buyers dry up (after enough tests), sellers take control and prices fall hard.
Today, let’s focus on the key resistance in Natural Gas. Again, the
more times a level is tested, the higher the likelihood that it breaks.
Why? Because with each test, in this case about $3.87, there are
technically less and less sellers willing to sell at that level? Why?
Because more and more sellers willing to sell up here have already sold.
Here is a daily chart of Natural Gas showing this to be the 4th attempt to get above this key resistance level since July:
The bad news for the natural gas bulls is that prices have shot up
hard as we currently approach this price. This makes it much more
difficult to break through, and quite frankly a breakout would be less
reliable. The good news however, is that this is test #4. But more
importantly we have a nice little shakeout, or false breakdown, early in
November that could be that catalyst to take prices through this
If and when these levels are taken out, the polarity mentioned above
starts coming into play. If we get through, we know the sellers have
dried up and the buyers are now in control. Therefore, any future
retests of this level should be met with buyers.
Either way, I think this action in Natural Gas is extremely
constructive. And for now, I’d rather err on the long side. I don’t have
a position yet, and as of right now I’m not sure where the entry point
is. But this is something definitely worth watching. Perhaps a retest of
the 200 day moving average could be the first entry? Maybe a few closes
in the 3.90′s could be confirmation. Or possibly the breakout and
retest of support. I’m staying very open-minded with this one and really
just taking it one day at a time…
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