Why natural gas production just keeps on growing (Part 2 of 2)

(Continued from Part 1)

The April futures for natural gas prices show the emergence of the head and shoulder pattern. Prices broke key support levels of $2.80 on March 9, 2015. The combination of massive gas production and warm weather acted as a catalyst. This drove the prices to break the key support levels mentioned above.

The important support level for natural gas is at $2.65 per MMBtu (British thermal units in millions). Prices hit this level on February 6, 7, and 9, 2015. On the up side, resistance is at $2.80 per MMBtu. The resistance is established from the peaks of February 4 and 13, 2015.

Natural gas charts show the head and shoulder pattern. According to the pattern, a breakout below $2.65 per MMBtu could push prices to the target of $2.25 per MMBtu levels. Massive gas supply and warm weather would fuel the bearish sentiments and push natural gas prices lower. Industry estimates suggest that prices could trade lower for the week.

However, bullish factors—like better future demand and bullish natural gas inventory withdrawals—would support the increase in gas prices. The RSI (relative strength index) is in oversold territory. Prices tend to increase from these levels.

The decline in natural gas prices impacts gas stocks like Rex Energy Corp. (REXX), Ultra Petroleum Corp. (UPL), and Energy XXI (EXXI). It also impacts gas ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG).

Browse this series on Market Realist:

• Part 1 - Natural gas prices declined more than 5% in a single day