October natural gas futures are sharply higher late in the session Monday after recovering from early weakness. The 50-day moving average at $2.923 is the immediate resistance level. Overtaking it would put the market in position to challenge the main top at $2.990.
The main trend is up according to the daily swing chart, but conditions have been choppy. A trade through $2.990 will reaffirm the uptrend. The main trend will change to down on a move under $2.668.
The main top at $2.990 and the main bottom at $2.668 have formed a short-term retracement zone at $2.829 to $2.791. Earlier Monday, the market traded down to $2.832 before rebounding. This was close to the upper, or 50% level, of the short-term retracement zone.
That was good price action, in my opinion, because it indicated the current rally is constructive rather than just short-covering, which tends to burn out rallies fast.
Traders should watch the 50-day moving average for the first upside signal. A trade through the main top at $2.990 will be the actual breakout trigger. The next potential upside objective is the intermediate retracement zone at $3.044 to $3.133.