Author: Willis Bennett

Prices Should Continue to Attack Gap

Daily Continuous

Discussed last week’s action in the Weekly area of the web site so will not go over here. Each day last week after the large Monday drop– prices attacked the gap left from the Monday open and would expect the same behavior today. One of my fundamental traders said something to me last week which was basically– forecasts could not get any more bearish so any changes will likely add to demand forecasts. The remainder of December could get very interesting with open interest low (occasionally, an indicator of a bottom forming) and the summer ’22 strip looking stronger than the winter months (having closed to a meager $.13 discount to prompt) suggests the potential for a counter trend run. Did I mention that expiration of the last nine months have had rallies.

Major Support: $3.734, $3.584-$3.522
Minor Support:
Major Resistance: $3.91-$3.931, $4.02, $4.127, $4.25 $4.61, $4.67, $4.735, $4.825, $5.10

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Prices Find Near Term Bottom

Weekly Continuous

Following the previous week’s close of $4.132, when trading resumed on Sunday night the first trade was $3.826, creating a substantial gap in both the weekly and daily charts (discussed in the Daily last week). January recovered about $.06 during the day but found selling at the violated 200 – day SMA…the first violation of the 200 – day since April 6th, and then traded down to $3.630 with the highest volume since the reversal from the October 6th high. The prompt worked higher after Monday’s action with both volume and volatility (and open interest) diminishing. The high traded on Friday afternoon but still left January $.207 lower with a weekly continuation gap between $4.042 – $3.965. This action has left the the short term momentum indicators severely over-sold.

Since the October 6th high prompt gas has fallen $2.836 or 43.9%, while the summer ’22 strip has lost only $.117 from its close on October 6th, equaling 3%. It should be noted that the summer strip posted its its last high on 11/27, $4.334 and has fallen from that high to a low 18.8% from that high. Total open interest continues to fall as traders show little interest in either speculation nor hedging at this point. Will look at total open interest this week and if there is some interesting aspect to the declines — will update during the week.

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Another Run at the Gap

Daily Continuous

Prices made another rally at the gap from Monday but to no avail. This week sets up for an interesting open next week as prices could open with a gap up (creating an island reversal) or another hard sell taking prices down and likely putting the Jan contract below the upcoming summer for 2022. The set up will come today as last Friday traded stronger only to give up the gains through the day and telegraphed what the mood was likely to be on Monday. Technical points continue to suggest the mini-range of the week with the high end the gap from Monday. I remain on the sidelines.

Major Support: $3.734, $3.584-$3.522
Minor Support:
Major Resistance: $3.91-$3.931, $4.02, $4.127, $4.25 $4.61, $4.67, $4.735, $4.825, $5.10

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The Gap

Daily Continuous

Prices started to close the gap from the open on Monday, climbing into the low end of the gap at $3.931. This closes the first $.05 of the total gap. Would not recommend buying into or selling into this move– rather take a day and a storage report to confirm the trend, whether that trend is a continuous decline or the start of a rally that may take prices through the gap and higher.

Major Support: $3.734, $3.584-$3.522
Minor Support:
Major Resistance: $3.91, $4.02, $4.127, $4.25 $4.61, $4.67, $4.735, $4.825, $5.1

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After $1.90 Decline in Seven Days – A Rest

Daily Continuous

If you are a bear and thought you were going to get another $.40 decline after the last $1.90+ then grow up or stop trading. Now the market should hit a consolidation trade for a period of time. The fundamental folks all say the declines are because of forecasts. Guess its going to be 70 in Chicago all winter— you know we should address this man made global warming — it having an impact on trading. Whoa, this kinda of sarcasm got me in trouble with a few of you last fall– and that too was about forecasts. So let me digress to what I understand — prices will not go to zero and trees don’t grow to the sky. Time to chill for a while– did I mention that gap??

Major Support: $3.734, $3.584-$3.522
Minor Support:
Major Resistance: $3.91, $4.02, $4.127, $4.25 $4.61, $4.67, $4.735, $4.825, $5.109-$5.175, $5.339

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Gap Open Below Significant Support

Daily Continuous

That is how natural gas likes to eliminate support zones — wait for the weekend and open below the support zone and force a daily and weekly gap in the charts. So it goes when trading gas — we now know the upper boundary for resistance near term and that would be the gap. The support goes back to last summer/spring as prices consolidated for a week around $3.584-$3.522. The market has entered over sold category but we saw that it can stay in the extreme zone last fall as prices were over-bought.

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Declines Late Friday Suggest Test April Lows

Daily Continuous

While prices rallied during Friday the selling at the end of the day suggests that prices will open lower which they did in a big way on Sunday night. Opening a gap through the major support zone that prompted the rally last spring. Now we need to see the response to the gap opening and how low prices are tempted to go. Needless to say, the market is becoming over sold and folks seem real comfortable with the “winter is over” concept — seen this before take a look at Dec ’15.

Major Support: $3.944, $3.91, $3.87, $3.734
Minor Support:
Major Resistance: $4.02, $4.127, $4.25 $4.61, $4.67, $4.735, $4.825, $5.109-$5.175, $5.339-$5.40, $5.64

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Collapse Take Prices Down to April Lows

Weekly Continuous

While prices rallied into the December settlement that settlement was below November (the first time a prompt has settled lower than the prior month since April settled discount to March) suggested that the character of the uptrend had changed, Tuesday’s decisive violation of the conventional support surrounding 4.70, the 20 – week SMA for the first time since early Q2 confirmed those assessments. The average of the declines from the fall (winter) over the last 20 years is 37.9% – the declines from the Oct 6th high to the low last week was 37.5%.

While prompt gas lost $1.345 this last week (the largest one – week decline since late February ’14 ($1.526), prompt gas remained above the rising 40 – week SMA (currently 3.905), though looking at the declines in the after market on Friday, expect that level to be tested early this week. The last time that prompt gas approached the continuation 40 – week SMA was over a five-week period during March and April before beginning the rally that resulted in the October high and the summer and fall’s bullish bias. The time before that was just prior to January ’21 expiration when the soon to expire prompt traded to $2.238 and seven weeks later the February high printed at 3.316.

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Next Stop?

Daily Continuation

Decided to add the Weekly continuation (below) chart to give an idea of what the declines are looking for. I would expect that a continuation of weakness below $4.00 will find some liquidation covering (stops) that send prices down an additional $.03-$.05– but the real target is likely the 40 week SMA (close to the 200 day SMA) at $3.90 which has held the market since Sept ’20. A break below that will have serious technical implications. In the near term the market is now starting to approach the extreme zones on the momentum indicators (Daily RSI) but could test the $4.00 before entering the extreme zone. The market seems to be looking for the low end of the new range and perhaps today will give us a better indication.

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Gains From Last August — Gone

Daily Continuous

Looking at the Chart above you will notice that all of the run since the first week in August has now been eliminated — that does not mean that any potential rally can’t happen– but yesterday’s follow through, likely means that rallies will provide good places to sell to traders. Yesterday, mentioned that the bias had been modified to neutral and with the extension below additional support zones, the trade bias is now distinctly bearish.

Major Support: $4.561, $4.375, $4.276, $3.944
Minor Support:
Major Resistance: $4.61, $4.67, $4.735, $4.825, $5.109-$5.175, $5.339-$5.40, $5.64, $5.964, $5.996

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