A key technical pattern warns of a reversal
By Elliott Wave International
It probably won’t be a surprise to you that Elliott Wave International is an advocate of technical analysis. After all, the Elliott wave method is a form of technical analysis.
You probably know that the term “technical analysis” refers to analyzing the behavior of financial markets themselves — generally by studying charts — as opposed to “fundamental” analysis, which is based on news and events outside of financial markets.
One of the many classic technical-analysis chart patterns is known as a double top. (Conversely, a double bottom is the same reversal formation after a significant prior down move.) Getting back to the double top, the first price high (or top) is followed by a moderate decline. The price then rises into the same territory as the prior high, which is the second top.
In August, the European Financial Forecast, a monthly Elliott Wave International publication which covers European financial markets and is also part of the monthly Global Market Perspective, said:
Natural gas has formed a bearish double top.
Keep in mind that this analysis was provided even though energy analysts were calling for natural gas prices to remain elevated due to “fundamentals,” for example, “supply strains.” Here’s a July 25 headline (The Financial Times):
Free Reports:
Sign Up for Our Stock Market Newsletter – Get updated on News, Charts & Rankings of Public Companies when you join our Stocks Newsletter
Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Traders expect European gas prices to remain elevated for years to come
Instead of remaining elevated, the price of natural gas fell, which was right in line with our analysis of that double top in the August Global Market Perspective.
The January Global Market Perspective provides a review with this chart and commentary:
The chart illustrates the continuous natural gas futures contract that trades on the New York Mercantile Exchange.
In August, we illustrated this contract along with 15 other key commodities and stated that gas prices had formed a bearish double top. In a matter of weeks, futures collapsed 50% and penetrated a key technical support level at [a key Elliott wave]. The same support level failed again last month.
True, not all analysis based on a market’s “technicals” works out as expected, but often, it does — or at least gets very close.
See how Elliott Wave International’s global analysts apply Elliott wave and technical analysis to other financial markets — free — for a limited time.
Just follow this link to get the details.
This article was syndicated by Elliott Wave International and was originally published under the headline Natural Gas: Here’s What Happened After a “Double Top”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
- Brent Crude Oil Rebounds Amid Monetary Easing and Market Dynamics Sep 19, 2024
- The US Fed surprised the market with a sharp rate cut. Australia’s labor market remains resilient Sep 19, 2024
- The US Federal Reserve will begin its rate-cutting cycle today. In the UK, inflation figures were unchanged Sep 18, 2024
- USDJPY Experiences Renewed Decline as Market Adjusts Expectations Sep 18, 2024
- Countdown to Fed decision enters final hours Sep 18, 2024
- Gold (XAUUSD) Holds Near Record Highs Amid Anticipation of Fed Rate Cut Sep 17, 2024
- EUR/USD Gains as Fed Meeting Approaches Sep 16, 2024
- The US Federal Reserve may start the rate-cutting cycle with a 0.5% move. Silver reached a 2-month high Sep 16, 2024
- COT Metals Charts: Speculator Bets led by Platinum Sep 14, 2024
- COT Bonds Charts: Speculator Bets led by SOFR 3-Months & Fed Funds Sep 14, 2024