December Natural Gas (NG) is nearing support and a breach indicates lower prices to come. 3.877 to 3.935 has acted as a support zone since late July, so far being tested three times.
Figure 1. Natural Gas Futures Daily Chart (NG), December Contract
A drop below 3.877 indicates further declines. The structure of the consolidation since late July has taken the form of the rarely discussed continuation head and shoulders pattern. Prior to this pattern forming the natural gas was falling, so the small head and shoulders pattern is potentially just a consolidation before further declines. This will be confirmed if the price drops below the pattern.
Initial target if the breakout occurs is 3.66 to 3.6. A Fibonacci target based on the June and July decline puts another downside target at 3.30.
Continuation patterns of this type are typically much smaller than head and shoulders reversal patterns, occur within a trend and typically retrace only on a small portion of the last trending wave.
Seasonally this part of September is typically very bullish for Natural Gas, so in this context a break above the pattern is also tradable, especially if the breakout lower (should it occur) fails.
September 15 saw the price jump off support by more than 2%, pushing the price toward short-term resistance.