Author: Willis Bennett

Now That is Strength Into Expiration

No picture (chart) today as I am having internet problems uploading large documents—let me give you an image of yesterday’s expiration.  Draw a straight line upward to $6.30 and then a retracement down to $5.70, then settling above $5.84.  For all of you who don’t understand technical data interpretations—that is called volatility.  Some of you may want to have technical indications of what will happen—good luck with that as the movements of the last 3 days (trading) have left the market extended into over bought —DUH—status.  Fortunately, most of you knew that yesterday and understand that markets may stay over bought for a period of time- some folks — well what can I say. One thing I can say is in the Weekly I thought prices would trade around $5.17,  don’t think that is gonna happen, but I would expect some sort of decline – remember what was resistance is now support ($5.65).

Major Support: $5.17, $4.88, $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.728-$4.70, $4.66
Major Resistance: $5.93, $5.88-$6.493

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Parabolic Expiration

I had written to expect support for prices during expiration, but in no way did I foresee that parabolic explosion that sent prices back up to the September highs (over $5.65). One would have to believe that any short covering happened yesterday (CME hasn’t updated open interest from yesterday) but there may have been some additional shorts bailing on positions. My thoughts were– strength into expiration– then some retracement as Nov takes over as prompt. Now my thoughts are how far up the pole can prices continue to run before the inevitable correction occurs (aka prices shedding nearly $1 last month after posting $5.65).

Major Support: $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.728-$4.70, $4.66
Major Resistance: $5.65, $5.93, $5.88-$6.493

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Expiration Week — Expect Strength

Daily Continuous

Last week’s strength into the close on Friday suggests that there will be strength in the expiration for the seventh consecutive month. Early trade on Sunday night confirm but the trade is extremely light and should be discounted on impact. The best guess I have is that prompt gas trades both higher and lower than 5.17 (last week’s close) with the likely hood of…higher before October is off the board, then lower during the first few days of November’s tenure. The problem is (looking at the trade on Sunday) how high does Oct trade during expiration.

Major Support: $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.728-$4.70, $4.66
Major Resistance: $5.24, $5.486, $5.65, $5.93

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A Reversal After A Reversal

Weekly Continuous

I am at lost to explain but the market seems to be telling us that it will be rallying into expiration for the seventh consecutive month. Last week we had a bullish reversal in the weekly close after the declines the previous week on a bearish weekly reversal after trading a higher high. There is a difference in the two reversals as the weekly declining reversal was on a higher volume and declining open interest, suggesting additional declines last week. Those declines were extended early last week, extending below the Q4 ’18 highs, then reversed after the storage report on Thursday. Last week’s reversal off of lows was on much lighter volume during the rally.

My comments last week alluded to what to expect later in the Q4 and continues to suggest that the rally has further to go, but not sure it will occur immediately.  If prompt gas intended to test the recent high in the near – term, there would have been more substantial volume during the recovery and rally last week.  It seems more likely that prompt gas constructs a continuation “coil” between those two extremes defined by the reversals ($5.65-$4.73) create short series of lower highs and higher lows, while the daily volatility (including the extremely overbought condition- weekly RSI), moderate.   

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Fears Come To Fruition

Daily Continuous

Mentioned in the last couple of Daily’s about the last 6 month expiration behavior being supportive to prices– Yesterday was a re-enforcement of those concerns as prices rallied slightly after the the storage release only to add to the gains into the close with strong support trade on the close. Are we headed back to the September highs?– probably not with the Oct contract but later in the fall, expect a test of those highs at the least. Perhaps the trend of the last six months of expiration strength will be broken but not going to bet against the trend (especially in a long term bull market trend).

Major Support: $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.728-$4.70, $4.66
Major Resistance: $5.24, $5.486, $5.65, $5.93

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Strong Consolidation Pattern

Daily Continuous

Was curious if the declines would extend below the $4.72 area and was not surprised the the selling ran out of momentum. Just a solid day of price consolidation after loosing nearly a dollar (16.5 %) decline. Still expecting declines but have to respect the last 6 month trend of expiration rallies. Strategic times in this area for setting up final winter positions.

Major Support: $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.728-$4.70, $4.66
Major Resistance: $5.24, $5.486, $5.65, $5.93

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Challenge One Complete

Daily Continuous

The discussion yesterday was having a test of $4.75 and that challenge is now completed — the next challenge will be testing the $4.66 area and my thoughts on that are muddled with the history of the last six expiration’s ending with rallies. Not convinced that the area from the Dec ’18 highs will be tested with the Oct contract. Prices have declined for four consecutive days — it is likely we will see a bounce.

Major Support: $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.728-$4.70, $4.66
Major Resistance: $5.24, $5.486, $5.65, $5.93

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Similar Monday Recipe Until it Wasn’t

Daily Continuous

Prices started lower on Sunday night (similar to recent weekend prices) only to find support on the open of the outcry which took prices up to $5.17 before the selling resumed. Unlike the previous Monday’s, prices retraced and settle the day down. As discussed yesterday, the market should build a consolidation period to launch into the Q4 run that will be coming later this fall. Would expect a test of support somewhere between today’s low and $4.75 during the near term. The only caveat to that expectation is the history of expiration rallies for the last few months.

Major Support: $4.879, $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.90, $4.728-$4.70, $4.65
Major Resistance: $5.24, $5.486, $5.65, $5.93

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Dare We Mention Correction

Weekly Continuous

Prompt gas spiked to the highest price since February ’14 then fell 10.7% in less than three trading days. Some would consider that price action a reversal. For four straight weeks, prompt gas and the winter strip closed higher prompt gas and the coming winter strip closed higher even after the declines. For the first time since ’00 there was no definable price decline during the period bracketing Labor Day which, historically is one of the most consistent price negative periods all year.

Key elements of the declines / reversal was the declines in open interest (liquidation of over 30,000 contracts) with the highest weekly volume since last January. The highest volume day of the week was the reversal day (Wednesday) with over 778,000 contracts traded. That type of volume and reduction of open interest suggests that a correction was in process which was confirmed with trade later in the week.

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It Is a Start

Daily Continuation

Last week’s three day correction off the high (nearly 3 standard deviations over the 20 week SMA) provided a over a 10% correction. The liquidation of 35,000+ contracts confirmed that the correction was likely fueled by some profit taking. This site has been calling for a correction for weeks, so I guess this is a good example of a broken clock being correct twice a day. Don’t get me wrong– the declines should not be over but from the parabolic formation it was a good initial phase. Go into some of the historical correlations in the Weekly section- and discuss long term implications from a strong September. The trend of the last few months has been strength going into expiration– we will have to wait and witness.

Major Support: $4.879, $4.61, $4.537,$4.375, $4.211, $4.156, $3.92, $3.821, $3.722,
Minor Support: $4.90, $4.728-$4.70, $4.65
Major Resistance: $5.24, $5.486, $5.65, $5.93