IFC Markets - Analytics

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    Technical Analysis PCI : 2015-05-04

    Nat gas price falling behind rising crude oil

    Today we analyze the daily chart of the personal composite instrument (PCI) &GAS/OIL. It reflects the price activity of Henry Hub Natural Gas CFD in the US against West Texas Intermediate (WTI) crude oil. Since mid-March the PCI tumbled approximately 33%, meanwhile over the same period WTI rose 36%, and the price of natural gas didn’t change significantly. We don’t rule out the possibility that the GAS/OIL correlation might grow because of the rising demand for natural gas in the United States and crude oil price technical pullback. According to oilfield service company Baker Hughes, the number of operating gas wells in the US reduced by three units down to 222 over the week, which means that it’s only 5 wells above the historical low in 1987. The domestic demand for natural gas may increase within a couple of weeks to 53.1 billion cubic feet a day, above the 30-year average of 51.3 billion for this season. Also a slight cut in gas exports from Canada and country’s own production is expected. In this context, the price movements may be affected by the information on US Nat Gas Inventories, which will be released on Thursday night. Going back to world oil prices, they may pull back on a slowdown in industrial growth in China. A weak Manufacturing PMI data was released there on Monday. Besides, the number of operating US oil rigs declined for 21 consecutive weeks, and now some market participants expect their growth over the 1-year high that was posted by WTI.


    The price of GAS/OIL:D1 reached the more than 7-month low and started to rebound. On Monday it breached the last upper fractal and the upper limit of Parabolic indicator. The lower Bollinger band turned upwards gently. The MACD histogram is located below the zero line and the signal line, indicating a buy signal for the third day. Parabolic has shaped a similar signal only today. RSI bars chart indicated a small bullish divergence and crossed the mark of 50. There is a possibility of the bullish momentum development after the daily candlestick is closed above the second nearest upper fractal at 0.8447: this mark may be used for placing a pending buy order. Stop loss is to be placed at the level of the last lower fractal and Parabolic point – 0.7763. After pending order placing, Stop loss is to be moved every four hours near the next fractal low, following Parabolic and Bollinger signals. The most careful traders can switch to the H4 timeframe after order execution, placing Stop loss and moving it according to the price direction. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss without reaching the order, we recommend cancelling the position: market sustains internal changes that were not considered.


    Position Buy
    Buy stop above 0.8447
    Stop loss below 0.7763

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