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Natural Gas Trend Lines Signal Price Decline: Technical Analysis

Natural gas futures will fall in the next month, based on a technical analysis of trend lines by Piper Jaffray Cos. that shows recent highs and lows.

A five-year weekly chart of trading ranges shows that gas on the New York Mercantile Exchange is currently testing its upper price limit, said Craig Johnson, technical market strategist with the company in Minneapolis.

“We’ve been making lower lows and lower highs since 2008,” Johnson said in a phone interview yesterday. “Technically, I think this is an area that natural gas would fail because you are at a key inflection point,” he said. The market is “at the very upper end of this downward trend.”

A six-month chart of daily prices shows gas may tumble to a support level of $3.20 to $3.30 per million British thermal units in the next month, Johnson said. The futures may test the 50-day moving average for a few days before breaking lower, he said. The average, a short-term support level, was $3.538 per million Btu yesterday.

There would need to be a reversal in fundamentals, either through an increase in demand or a drop in supplies, to upset the trend lines, Johnson said.

Gas for January delivery rose 3 cents, or 0.8 percent, to settle at $3.591 per million Btu yesterday on the exchange. Gas has fallen 8 percent since closing at a 13-month high of $3.903 on Nov. 21.

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