Two weeks ago, on September 13th, the price of natural gas was hovering around $2.83, following a decline from as high as $2.996. Fortunately, the Elliott Wave Principle helped us recognize the fact that the recent weakness was nothing more than a temporary pullback within a larger bullish setup. So instead of joining the bears near $2.83, we decided it was a good time to go with the other team, whose initial target was the $3.000 mark. The chart below, included in our last update on natural gas prices, was the very reason for our optimism.
It revealed that the rally from $2.704 to $2.996 was a textbook five-wave impulse, which means the larger trend was pointing north. The decline to $2.759, on the other hand, had a three-wave structure, labeled A-B-C. Taken together, these two patterns formed a complete 5-3 wave cycle, which meant that the bulls “can reach the $3.000 mark from now on and even shoot for $3.1000, as long as the price of natural gas stays above the bottom of wave C at $2.759.” Two weeks later today, it is time to take another look.
The bulls almost looked doomed at first as natural gas fell to $2.767 the next day. However, $2.759 survived and the following sharp recovery generously rewarded our patience. It took natural gas prices to the $3.000 mark on September 20th and to $3.088 five days later.
As of this writing, the price is hovering slightly below $3.000 and seems to be trying to turn the recently breached resistance into support. Keeping in mind that a five-wave impulse has to emerge from the bottom at $2.759, chances are good that another upswing to $3.100 is around the corner in wave 5.
After that, however, a bearish reversal should be expected, since every impulse is followed by a three-wave correction in the opposite direction. Whether it will be just a small pullback or a larger decline is yet unknown, but traders should know that the price of natural gas carries a lot more risk for their long positions now than it did two weeks ago near $2.830.
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