Author: Willis Bennett

Expiration Week – Trend Continue?

Weekly Continuation

Last week’s close on some rebound strength (storage release weakness) gives hope to the bulls that the Feb contract will find its footing this coming week. Not believing in hope as a strategy, perhaps the market will resume the Thursday’s declines and test support from the Thursday low ($3.781) down to the $3.70 area before rebounding and and be well bid into into expiration for the 11th consecutive month. Following those expiration rallies none of the successor prompts continued to add substantially to the expiration related advances (October almost did) before retracing a chunk of the gain. January collapsed after December’s last day spike higher, February fell from 4.077 to 3.536 (a new continuation low and contract low daily close) after January was off the board before beginning to work higher. I can offer no explanation for this expiration phenomenon, only that history can present a trade strategy until it breaks trend. Prices may continue to rally from the Friday close, at which point the high from last week, around $4.39 (the false rally off of the long weekend), will present a solid target.

History provides that the last few days of trade in January and early February (March contract) have market a significant level (either high or low) for the tenure of March trade as prompt. From a long term perspective natural gas remains in a secular uptrend that began in June ’20 (discussed here since the fall ’20) defined by the trend line from that low found on the monthly continuation charts (below). Within that uptrend prompt gas has since early October been in an intermediate term down trend that has retraced 58.3% of the $5.034 rally from $1.432 to $6.466 (not quite a perfect Fibonacci 61.8% correction). As long as that secular uptrend remains in place– the appropriate strategy for trade is to work from the support levels defined from trade in the last year and selling the rallies at resistance.

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Prices Rebound on Friday

Daily Continuation

Price action rebounded off of the lows from the storage report declines, bouncing off of weak support areas and found support as the day went on. This type of bounce is likely related to some changes in the forecasts and if your desire is to trade these chops then feel free. My concept is to show patience — wait for a strong test of support between $3.70 and last week’s low $3.78 to add to positions. Go into the expiration history in the Weekly section and strongly recommend reading it.

Major Support: $3.734, $3.63, $3.584-$3.522 63, $3.584-$3.522
Minor Support: $3.82
Major Resistance: $4.02, $4.18, $4.32, $4.48, $4.73-$4.775, $4.818-$4.825, $5.045

Declines Extended

Daily Continuation

Prices continues lower yesterday testing the near term support at $3.82 which represents the June high at $3.814. This would be a higher low discussed in the Weekly section, but not convinced that the declines are over. The next area for a test lower is the August low at $3.734. A consolidation of the recent $.45+ decline would also be in play for the last day of trade this week.

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Consolidation Leads to Break Down

Daily Continuation

Prices broke down below the commonly traded Moving Averages and started to test the support from many of the weekly highs from last December (including the lows from the week ending 12/3). A continuation of the break down will likely find little support until $3.81-$3.73 in the coming weeks.

Major Support: $4.02, $3.734, $3.63, $3.584-$3.522 63, $3.584-$3.522
Minor Support: $3.82
Major Resistance:$4.18, $4.32, $4.48, $4.73-$4.775, $4.818-$4.825, $5.045

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Quiet Consolidation

Daily Continuation

Not a ton to write about as prices consolidated yesterday and may very well trade in a tight range again today. It seems to waiting for the next piece of news that will drive volatility. Nothing to do trading wise as prices are in the middle of recent range– hello chop trade.

Major Support: $4.02, $3.734, $3.63, $3.584-$3.522
Minor Support: $4.27, $4.19,$3.82
Major Resistance: $4.32, $4.48, $4.73-$4.775, $4.818-$4.825, $5.045

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Volatile Week Part 2

Daily Continuation

Wrote a Daily yesterday and I doubt anyone read it so I will repeat as prices started strong on Sunday night only to retrace during the quiet trade day. Here is what was written Sunday night….

Discussed in the Weekly section, the tremendous decline in open interest since September had brought with it a potential upside vulnerability. Discussed it last week as more of a fact not a question of if.  This last week, prices all along the maturity curve moved dramatically higher with both volume and open interest increasing substantially (average daily volume by an estimated 200,000 contracts and open interest by the most contracts since the week beginning June 28th) .  I mentioned in Weekly section that February would remain range bound, while still expecting a range bound trade, clearly the levels of the range has changed to higher levels. Last weeks action also strongly suggests a significant intermediate term low may be in place.  Expect price weakness to attract substantial interest at progressively higher levels.

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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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Volatile Week

Daily Continuous

Discussed in the Weekly section, the tremendous decline in open interest since September had brought with it a potential upside vulnerability. Discussed it last week as more of a fact not a question of if.  This last week, prices all along the maturity curve moved dramatically higher with both volume and open interest increasing substantially (average daily volume by an estimated 200,000 contracts and open interest by the most contracts since the week beginning June 28th) .  I mentioned in Weekly section that February would remain range bound, while still expecting a range bound trade, clearly the levels of the range has changed to higher levels. Last weeks action also strongly suggests a significant intermediate term low may be in place.  Expect price weakness to attract substantial interest at progressively higher levels.

Now That Was Dramatic

Daily Continuous

Natural Gas is such a great commodity trade– goes up $.60+ on one day only to go down $.50+ the next — that is major league chop. Mentioned in the late posted Daily that expect a retracement and consolidation — did not expect the retracement to include nearly all the previous days gains. Volume was huge on Wednesday and just shy of that level yesterday. Open interest is more confusing as it gained nearly 30% on the rally day but only lost under 10% yesterday. I thought a significant amount of the gains on Wednesday was short covering which would show up a a decline in Open interest– not so. Yesterday’s decline can easily be defined as profit taking. Now what– there should be some consolidation in here at some point — may want to tread lightly and short term today. Continue to think that the comments in the Weekly section are spot on about the market in general — but clearly, the range defined in the Weekly, may have to be adjusted due to this volatility.

Major Support: $4.02, $3.734, $3.63, $3.584-$3.522
Minor Support: $4.27, $4.19,$3.82
Major Resistance: $4.32, $4.48, $4.73-$4.775, $4.818-$4.825, $5.045

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Exciting But Too Far Too Fast

Daily Continuous

Yesterday’s big run was a combination of forecast changes and short covering and clearly the market was a bit over bought with big volume and resistance minimal in a short covering rally. Had issues with my email delivery so this is only on the web today. Let the market retrace — if it does– and devour yesterday’s gains. If it doesn’t happen today and prices rock they will have to consolidate at some point. Risky to enter length at the highs, a pull back may give you a better entry point.

Major Support: $4.02, $3.734, $3.63, $3.584-$3.522
Minor Support: $4.38, $4.19,$3.82
Major Resistance: $4.73-$4.775, $4.818-$4.825, $5.045