Author: Willis Bennett

That was a Holiday week as prices gaped open ($.26) lower only to spend the remaining days erasing that loss and ending the week $.015 higher. As expected all of this action occurred on below average daily and weekly volume.

January has had a strong history since ’92 of starting a month with a gap up or down. Sometimes (like last week) the gaps happen before during or after the holiday period. After what appeared to be a devastating gap lower to a three month low, prompt gas managed to trade a second straight reversal week and finish higher. It should also be recalled the historically importance (compared to other calendar months) is attached to the January extremes. For example, in 16 of 30 years the Q1 high has traded during January, on the other hand –14 times the January low has been the Q1 low. For some unknown reason, January trade has significant impact for prices during the year.

The price collapse last week suggests that prices will want to re-test the support gap from the Nov contract at $2.37. Closing near the lows of the week on lighter than average volume (Holiday related) does little to support the near term action. Support will likely be found from the high end of the gap ($2.377) down to the low end of the gap at $2.10. Mentioned last week that the market was susceptible to volatility and that can be either up or down as it heads into another expiration and Holiday week.

Support: $2.425,$2.373, $2.255-$2.176
Minor Support: $2.162
Major Resistance: $2.55, $2.74-$2.789, $2.98-$3.05,
Minor Resistance:

You will notice the chart directly above and remember it from two weeks ago. I wrote about it this way…”Take a look at the chart above– each of the blue highlighted circles represent an early winter low as the market was under the cacophony of bearish claims highlighting the status of winter. Notice the reversals off of the lows– each over 30%. In 2015, prices bottomed at $1.68 only to reverse and trade up to $2.49 (over 47% increase). In 2016, the price low was $2.546 and the reversal took prices up to $3.994 (57% increase). In 2017, declines stopped at $2.568 and reversed upward to $3.34 (30% increase).”

Now look at the chart above it — it represents the driving force behind the rallies with culminated between the end of December of those years through the end of January. Many of you know that the underlying premise of mine is the Q1- market trades to a low, Q2 – trades to a high, Q3- trades to a low and Q4 – trades to a high. At this point the market has conformed properly with this pattern with the highs last Oct and Nov, but I am not convinced that the Q4 high has been defined. I also have 2020 history showing me that the Q2 rally occurred over a historically short period of time (five weeks) and the Q3 low occurred at the end of June (technically Q2). This year has provided some odd behavior (variance from historical standards) for gas and adds fuel to my doubts about current actions. A primary reason for my doubt is the short interest in the contract. Looking at the top chart — notice what drove each of those rallies off of the lows was short covering at the start or during the rally and we currently have a large short interest (not excessive). Should the demand forecasts continue to support or drive the price action– we may see some speculative short interest covering.

Two weeks ago prices broke below the 20 Week SMA only to close above this key area which has held the market (closing basis) since the week of July 13th. Last week’s bounce was an indication that January had traded its low prior to expiration.  Successfully trading through those trend lines will be further confirmation of that low while also going a long way toward repairing the technical “damage” to the charts that occurred with the declines endured from the first week of November failure at the October high. Adding to this correction of damage was the first week of December “outside” week reversal. 

While the collapse has been averted for now, there remains significant resistance that January will have to address. On a continuation basis, if prompt gas trades to 2.760 it will have regained 38.6% (Fibonacci retracement analysis) of its decline.  January must trade to 2.803, just a penny or so above its June and July lows (2.778 – 2.785). January has settled lower than December in each of the last three years (December ’20 closed settlement at 2.896)