Market Internals Start to Change

Weekly Continuation

The last couple of week’s I have discussed that the constant liquidation of open interest (last weeks open interest left the total number of contracts outstanding at a four – year low), had created upside vulnerability. The continuing decline in volume added to this potential instability.   Last week’s substantial increase in volume and open interest during the volatile trade brought about the realization of that vulnerability. It also suggests that the gas market has redefined support within its long – term recovery from the June ’20 multi – year low. It appears that prompt gas appears to have completed construction of a month – long base that likely includes a very significant intermediate term low.

The coming summer strip, which did not close below its 40 – week when the prompt and the one – year did (apart from one week during March ’21 the summer ’22 strip has remained above its 40 – week SMA since early July ’20, (see chart below) gained .342 and has a clearer path toward a test of its early November closing high.

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