August finished Monday higher for the first daily gain of its tenure as prompt (actually for the first time since a daily reversal higher on 06/24). Some of that support interest in August was a product of late coming shorts covering, but a 13,600 contracts increase in open interest suggests that there was also some new buying. The reversal from a lower low was enough to inspire an extension of the bounce to test first resistance. The value of the declining 40 – week SMA was $2.442, the high for the week was 2.448. Failure at the moving average resistance was followed by three more lower daily closes (making it eleven of twelve for August gas since June 24th (which rivals the nine of ten lower closes that led to the February low). The lowest of the daily closes was $2.269 which was the lowest for a prompt contract since 05/10. Violation of that zone of support would put a big target on conventional support presented by the highs of calendar March and April (2.009 – 2.092, see Chart I) and then the “expiration” gap left after May gas went off the board ($1.848 – $1.913,). My guess is those targets will remain untested until later in this quarter but not right now. It may prove noteworthy that September traded a lower low while it was losing the little bit of premium that had been awarded over August.
With prompt gas having tested and retested the support within that range an intermediate term uptrend began during Q2. That uptrend extended into the band of resistance, but the divergences that have occurred indicates that the sponsorship to break from the long term trading range was absent and an intermediate term down trend (the declines from the Q2 high toward a Q3 low) has begun.
