Breakdown Week in Trade

Weekly Continuation

After six weekly closes in a tight range prompt gas broke down through the 50 – day SMA which is the first close under the widely watched moving average since April 21st. The breakdown from the contracting consolidation pattern, suggests that the October 6th high may provide the the traditional Q4 high. Over the last twenty years prompt gas has declined by an average of 37.9%, 40% over the last ten years from its Q4 high. A year ago prompt gas declined 34% from an early November high to a late December low. Since the early October high the prompt price has fallen from a high of $6.466 to $4.725, a decline of $1.741 or 26.9%.

While the front end of the maturity curve was technically damaged and punished, with the winter strip falling $.705, the Q2 ’22 months closed an average of only $.082/ lower; the summer strip only $.068. This suggests the possibility of the the massive liquidation of bull spreads (liquidation of nearby contracts while buying to cover short deferred contracts).

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