Spoke last week about the expectations of a test of support at the zone around $3.68 — well that happened quickly and prices extended into the next support zone in the $3.30s before finding some footing associated with the enormous rally in all the markets (most importantly crude) after the early weakness. Associated with the volatile week was a massive liquidation of open interest, 58,210 contracts on Tuesday alone during the suggesting that there some disappointed longs, which triggered the necessary volume. From there the next area of support mentioned in the Daily was the target between support at $3.250 – $3.300 — the May contract could not fulfill that expectation. After trading as low as $3.336 May reversed higher to close at $3.816 (some would consider a solid reversal). It is not normal technical analysis, but a sudden switch from “risk off” to “risk on” resulting from events unrelated to natural gas was the trigger for the substantial high volume reversal. Crude reversed along with natural gas to trade nearly an $8 range, gold nearly $125, bitcoin nearly $9000 with similar volatile gains in risk assets across the spectrum.
Such events are unpredictable and are usually unwound, but are also often consequential. In the case of gas, the reversal traded with 1,122,556 contracts and further liquidation of 44,450 contracts of open interest as participants with short positions were whipsawed out of the previously falling market. Between the two events (the liquidation of long positions on Tuesday and short positions on Wednesday) total open interest was reduced nearly 100,000 contracts and another 30,000 on Thursday. There are not a lot of comparable wholesale liquidations that match those few days.
