Natural gas futures prices and the UNG ETF break key resistance
Natural gas prices and UNG trend higher (Part 2 of 2)
Natural gas prices break key resistance, but will they hold?
Natural gas prices broke out of their bullish rounding bottom pattern on Friday, February 20, 2015. The expectation of extended colder weather across the US supported the rise in natural gas prices and acted as a catalyst for the breakout above the key resistance of $2.900 per MMBtu (million British thermal units).
Key support and resistance
The next key resistance is forecast at $3.1 MMBtu. Prices have hit this mark four times since December 24, 2014. On the downside, the previous key resistance now forms the support at $2.900 per mBtu for natural gas. Unrelenting production will still place long-term downward pressure on prices at key resistance levels. Weather-related spikes in prices aren’t long-term indicators, and they can reverse quickly.
In the natural gas price chart, the relative strength index (or RSI) is in overbought territory. Traders should be cautious while trading stocks in overbought territory. However, as per the bullish rounding bottom pattern breakout, the upside target is at $3.15 to $3.20 MMBtu.
Similar to natural gas prices, the United States Natural Gas Fund (UNG) also broke out of its key resistance of $14.50 on February 20, 2015. Based on the breakout in natural gas prices, the UNG ETF signals that prices could hit $15.75. On the other hand, the RSI—a technical indicator—is in overbought territory, which is a concern. Prices tend to correct after reaching overbought territory.
The UNG ETF tracks the performance of natural gas futures traded on the NYMEX (New York Mercantile Exchange). So the UNG ETF gains as natural gas prices rise.
The recent increase in natural gas prices will affect the margins of major gas producers like Southwestern Energy Company (SWN), Anadarko Petroleum (APC), and Devon Energy (DVN). Most of these companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
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