Natural Gas Futures (NYM.NG) dropped 4.7% on Tuesday, the second successive 'very big'* decline, to close the day at $12.368 per mmBtu, a new 20-day low. This comes after NG traded at a 52-week high last Wednesday. NG also crossed below its lower Bollinger band (20-day, two standard deviation bandwidth) on Tuesday.
* One-day percentage loss is more than two standard deviations stronger than the average one-day percentage change measured over the last 30 trading days.
Q: How has NYM.NG performed in the past, omitting repeat occurrences within 10 trading days, when it crosses below its lower Bollinger band on a 'very big' decline?
A: According to the 21 previous occurrences of this event, EventEdge indicates that NYM.NG has shown a strong bearish edge that peaks 21 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Tuesday, July 8, 2008) is Wednesday, August 6, 2008.
NYM.NG declines in 90% of the cases (19 of 21) by an average of 9.8% relative to the close on the event date. The average of the two rallies is 5.6%. The overall return of the 21 cases is -8.4%, which, based on the close of NYM.NG on the event date ($12.368), provides a target price of $11.329.
On the other hand, looking at recent movement of NG, initial short-term bullishness is likely. This is illustrated in the second graph below. Also, as can be seen from the bar chart, it seems that after the recent price action, NG has hit support.
When we asked the MIM how NG has performed so far this year after two successive declines while using a five-day skip, we see that NG has bounced right back. According to the 10 previous occurrences, NG peaks six trading days later, rallying 90% of the time by an average of 6.4%. (For more details consult either the graph text or the second summary statistics table below)
Thus, it may be wise to expect an initial surge before the bears really kick in...
For more Market History analysis go to www.markethistory.com
For more Ronish Patel is an analyst with MarketHistory.com.
