A Good Week to Go Fishing

Weekly Continuous

Gas traded an “inside” week — staying with in the previous week’s range and ended unchanged from last week’s close. I have tracked weekly ranges, opens and closes since the late ’90’s and I can’t think of the last time that the market closed almost exactly where it began (3.674 v 3.673). Friday’s close gave us three “tight” weekly closes (within $.026) which is also a pretty rare occurrence. This type of activity can clearly meets the standards of consolidation of the recent gains. Historically a market that is consolidating and struggling to establish momentum are usually resolved in the direction of the underlying trend with the release of technical “energy” that builds up during them triggers a significant range expansion.

That said, this market may be ready to attack higher levels but is missing some key indicators. Average daily volume has, on balance, declined since early June, while total open interest has increased significantly. Discussed here many times, bull markets have to keep feeding the beast. While it is good to see the gains in open interest, the change in “open interest” over time is a “lagging” indicator but historically substantial increases are inevitably followed by price declines while exceptionally low levels of open interest are characteristic of the construction of a low. Since the April low, the total number of contracts open in the market has increased from 1,164,269 to 1,466,459 (about 26% after already having increased from 1,117,622 with the January low). The last 155,057 of that increase has occurred since last month’s breakout through the October – November – February highs. That is a lot of new buying (which increases upside pressure on the bid) for a market that has gone absolutely nowhere for most of the last three weeks.

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