The tension between Russia and Ukraine has been in the media for quite some time now. Usually when there is a conflict or some kind of a disaster somewhere and prices of oil, gold or gas are rising, reporters are constantly explaining how “the market reacted to the events”. But you do not hear the same when such an event is present and prices are falling, do you? As a matter of fact you hear nothing at all about prices. Why do you think? Because reporters need to make sense or they will lose their job. They can not just say that gas prices are falling, while its major exporter to Europe is preparing for a war. There would be no logic behind such a statement. Truth is that there is no need of logic, because the engine behind major market swings is completely different. To illustrate how irrelevant news and events are to the markets we will take a look at the weekly chart of natural gas.
As you can see natural gas has been in an uptrend since April 2012, when Russia and Ukraine were still good neighbours. Starting from 1.90, prices soared to 6.37 in mid-February 2014. Then, just as the conflict between the two was arising, the rally suddenly stopped and prices were brought back under 5.00, where they still are. So, why does 6.37 stay untouched for 6 consecutive weeks now, when the tension between Russia and Ukraine is getting from bad to worse? Logical thinking would only lead us to a dead end, because the driving force of market trends is human mass psychology. Price charts are nothing, but an illustration of it. And the proper tool to analyze it is the Elliott Wave Principle. You will see that same chart below, labeled.
According to the Wave Principle, five-wave sequences show the direction of the trend. On the above chart we can count only three waves labeled A-B-C in red. In other words, the whole rise form 1.90 to 6.37 seems to be a correction of a larger downtrend. This bearish outlook will be confirmed, if we see a decisive breach through the green trend-line. If this is the correct count, natural gas prices could go down to 3.00 or even lower during the next year or two.
Charts by www.investing.com
