History shows that more often than not seasonal lows trade with declining volume. Volume on Sept 22nd was substantially less than the volume of the day before or day after. The retest of the late Dec low (also a relatively lower volume day) on January 22nd when the January low was traded at 2.414. The technical indication is that whatever downside momentum that was carrying prompt gas to that low, was or was about to be exhausted. Another way of analyzing this the sellers were running out of participation to drive the bid lower. Perhaps, a variation of that pattern is going on right now. A week ago, April gaped lower on Monday, traded quietly in a range for a couple of days then spiked down toward a test of the January low. Interestingly, the volume on 03/18 exceeded that of 01/22 by more than 100,000 contracts, suggesting that there may be enough additional selling (discussed here) to challenge the conventional and moving average support (the 200 day SMA was 2.447) and leave prompt gas below the trend defining 40 week SMA. Since that spike lower with 415,730 contracts traded the market has preformed an “outside” day reversal to the upside (March 24th). Average daily volume for week ending Mar 26th declined an estimated 80,000 contracts from a week earlier and was the lowest since the holiday shortened Christmas week. Perhaps there is additional selling waiting, but last week’s expiration suggests that volume has sufficiently dried up to indicate that there has been a successful test of the January low during March, looking like an intermediate term low with of the construction of the lower boundary of a trading range.
Some additional support for that view can be found in the change in open interest. The last three meaningful increases in the total number of contracts outstanding were on 03/12 (when selling continued into the weekly close, suggesting lower prices were in store when trading resumed discussed here), 03/15-when prices began the next week with a gap lower, and on 03/18-when April tested the 200 day SMA and January low. Those increases indicated that short sellers were throwing increasing positions significantly, attempting to drive it lower. These actions proved successful the first two times. April fell from a high of 2.714 on 03/11 to that 2.422 on 03/18. Since the 03/18 low open interest has declined each day indicating that gains have been significantly attributable to profit taking (the rally around expiration can also support this view) and does suggest that weakness should be bought near term.