Author: Willis Bennett

Prices continued the range that has held the market for five weeks now. During this time period there have been some internal development in the broader market that should be noted. First is open interest – it peaked in September at 1,468,636 contracts (during the extraordinary rally), and now has started to fall during the last three weeks of December. These declines have established a year end low of 1,108,463 (the lowest total of contracts outstanding in more than four years) while prompt gas has managed to post three weekly closes (3.690, 3.731 and 3.730). The inability to extend the lows further no several attempts suggests that the gas market has absorbed an historical liquidation and is likely run out of sellers.  High levels of open interest tend to occur when everyone wants to own some gas in anticipation of higher prices, low levels when few do. 

Some food for thought –A year ago prompt gas fell from an early November high to a pre – January expiration low of 2.238 on December 28^th.  Since then that low has never been tested.  This year the February’s pre – New Year’s low traded on December 30^th.  Interesting things often occur around the anniversaries of previous significant events. The summer strip has turned back higher without testing its 40 – week SMA all while prompt and winter prices have faced serious selling.

For whatever reason prompt gas has a habit of beginning (or in close proximity to the beginning) each new year with a significant event and more often than not, that event takes the form of a gap. Not sure if history will rhyme this year, but you may want to consider just a couple of factors:  1) In six of the last seven years began with a gap one way or the other, and far more important, 2) that the January high and low historically carry disproportionate importance.  For example, in 2019 the new prompt February gaped lower on the last trading day of the year.  That gap was filled and the January high traded on 01/15. That high held the market throughout the year.  The January ’19 low was not traded until the 29^th…and was promptly violated on the first trading day of February.  In 2020, there was no gap but the rally in early Jan ’20 set the high for the year. Last year, the market had a gap at the end of December only to rally, rally with a gap at the new year, but prices never challenged the low from the late Dec gap. 

Again, based on all the history we have, whatever the January extremes turn out to be are going to be important to your planning for the year.  It is easy to lose sight of the importance of price levels traded early on.  Just about everyone in the market seems to have interest and more attention to short – term fluctuations but I encourage you to at least give price change during January your attention.  

Nine consecutive contract months have been bid into expiration, with the last six have traded a low between the 15th and 21st. This week’s low traded on Friday the 23rd represents the latest for an expiring month since June traded a low on 05/24 only to rally during its last three trading days. Failure of expiring January to rally before it goes off the board will likely suggest another character change for the market and weakness into at least early ’22.

Multiple technical violations have been discussed as they occurred over the past couple of months. Together these have spelled the end of the year and a half uptrend. That said, also note that on a monthly basis the long – term uptrend remains in effect and the coming summer strip remains above its 40 – week SMA The decline from the Q4 high was exacerbated by the liquidation of open interest and looks to be overdone just as the rally that extended more than 50% above the 40 – week SMA, last fall was.