It has been only a week since our last update on natural gas, but what an eventful week it was. On September 27th, the price was hovering around $2.99, following a recovery from $2.759 to as high as $3.088. The Elliott Wave Principle, which had previously put us ahead of that rally, this time suggested that natural gas prices might face resistance near $3.100. Once the bulls reach this mark, at least a small three-wave pullback back to $3.000 was supposed to occur.
The rally from $2.704 to $2.996 was a perfect five-wave impulse, followed by a simple A-B-C zigzag. Therefore, the rally from $2.759 was also supposed to evolve into a complete five-wave pattern before the bears reappear.
Natural gas completed the five-wave pattern at $3.134 the same day and then fell to $2.999 on September 28th. The odds of it declining further or rising were even at the time. Apparently, the market chose the latter. As of this writing, natural gas is trading slightly above $3.26, so it is time to take another look.
It is true that the anticipated pullback was much smaller than we expected – wave 2. The five-wave rally from $2.759 to $3.134 turned out to be only wave 1 of a larger impulse, which we believe is still in progress. The same logic applies: wave (3/C) needs to form a complete impulse, before the next notable pullback.
Right now, wave 3 is still under construction and waves 4 down and 5 up are missing, so the bulls remain in charge for now. $3.400 looks like a reasonable target. On the other hand, the theory states that every impulse is followed by a three-wave correction in the other direction. One can never know exactly how deep that correction will be, but once wave 5 of (3/C) is over, we should be ready for one to occur. The depth of the pullback will be up to the market to decide.
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