May 18 (Bloomberg) -- Natural gas futures are poised to give back of their recent gains as a head-and-shoulders pattern that formed last week signaled a reversal, according to a technical analysis by John Kilduff, senior vice president of energy at MF Global Inc.
The pattern was created during trading May 12 through May 15, with a surge above $4.50 per million British thermal units on May 13 forming the head, Kilduff said in a telephone interview. Gas reached $4.575 before beginning a decline.
Natural gas futures had risen from $3.155 per million Btu on April 27, the lowest since Sept. 5, 2002, amid speculation that supplies will decline as drilling slows. Prices gained 22 percent in the week ended May 8, the biggest increase in more than two years.
“We’re going to give back the majority of this move, so I’d look for it to give back $1,” he said. “It’s going to be pretty quick because there’s not been a lot of conviction in this buying. This was a rally built on sand.”
A similar formation in early January, with an intraday high of $6.24 on Jan. 6, set off a 31 percent decline to $4.28 on Feb. 2, Kilduff said. Gas rallied for a short period from the Feb. 2 low before tumbling more into late April.
A break of the 10-day moving average on May 15 indicates “an extended move lower” to between $3.50 and $3.75, Kilduff said.
Natural gas for June delivery fell 19.4 cents, or 4.5 percent, to settle at $4.098 per million Btu on May 15 on the New York Mercantile Exchange.
Technical traders monitor patterns on daily charts for clues to price direction, and may sell or buy based on those signals.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
Last Updated: May 17, 2009 19:00 EDT
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