Author: Willis Bennett

Prices Retrace on Cue

Weekly Continuation

Suggesting for the last couple of weeks, that prices need to retrace the gains since the beginning of August. The last two weeks have eliminated the over bought status driven by the momentum indicators. The Fibonacci retracement went just down to the 50% support zone (from the lows in late July to the highs last week) see Chart below.

Fibonacci Analysis from late July Lows to Recent Highs

The declines are in-line with the the historical averages for declines from either side of the holiday. Now, the market will need to wade through the sentiment associated with the late year rally (occasionally concurrent with forecasts). Heard some whining during August, from many folks arguing against the well bid market when storage inventories are clearly going to be over 4 TCF. This is a fundamental concept that I ignore, but I remembered a few years ago when they ended over this level so I thought I would go back and look at what happened to prices. In 2016, prices rallied strong in October to correct some of the gains in early November then was well bid well into the winter. In 2015, after coming off declines most of the summer and fall— prices collapsed with a slight rally early in Dec. before resuming the declines, setting the stage for a multi-year low in March ’16. So there are two potential outcomes regardless of ending at 4 TCF, looking at history– yet another example of the value of technical analysis.

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

Great Consolidation Pattern

Daily Continuation

Suggested at the beginning of the week was the potential for the market going to “rhyme” with its history, or continue to run beyond reasonable technical areas. My belief was that the market would succumb to the historical weakness surrounding Labor Day and that is what has occurred. In the last eight years (2020 included) the Labor Day low has occurred sometime by the 10th of September. The seasonal trend continues– the bigger question now is does the market extend lower or start to recover. Needless to mention- the over bought conditions have been mitigated. Still surprised at the expanded spreads in the Oct vs any of winter months– one my highly respected physical traders was as puzzled as I remain. Discussed earlier in the week– one position has to change — either Oct chases Nov, Nov has to decline to Oct, or the market stays keeps the spread extended and the correction will occur after Nov takes over as prompt. Keep those choices in the back of your trading mind.

Major Support: $2.28, $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: $2.255, $2.195, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809 Minor Resistance: $2.37, $2.49-$2.51, $2.56

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

Solid Consolidation

Daily Continuation

Continued consolidation of prices has taken prices off the over bought levels and now sit at some very normal zones. There are two ways of correcting over bought conditions and one is a major correction, the other is time. It looks like the current market is utilizing time for the correction to the over bought status. Continue to play the current range from $2.35-$2.50 until the market explains further intentions.

Just and FYI take a look at the Weekly section as I expand on the year of 2002 that I hinted to yesterday.

Major Support: $2.38-$2.415, $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: 2.377, $2.28, $2.255, $2.195, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809 Minor Resistance:$2.49-$2.51, $2.56

Looking At History

Daily Continuous from 2002/2003

Highlighted three years that prices stayed strong during August, but I wanted to focus on 2002, as the spread between October and November expanded to over $.40 in early September, which is similar to this year.

Spread Between the Oct and Nov Contract in 2002

Notice that the solid gains during the August month in 2002 (blue circle), prices then retracted 14.6%, before extending on a long term rally that didn’t conclude until February ’03. While that started, the spread between Oct and Nov contracts expanded to $.40 (premium Nov) during early Sept. Similar to the current year, prices held firm all during the August trade and currently trade $.45 differential to the November contract. The recent declines from the highs at $2.743 have corrected 14.7% at the lows yesterday. In 2002, the market did not correct until Feb 2003 as prices skyrocketed. Not sure if this occurs in 2020 but wanted to bring history to your attention.

Differed Contracts Remain Powerful

October less November Spread

Mentioned yesterday that some of the differed contract to the October contract were at substantial differences. Above is the October contract to the November, while it looked to be converging last week– yesterday’s action took it back to where the spread was at the beginning of Aug. It is clear that the market has some concern about the upcoming winter– regardless of the fundamental conditions. The gap between these two months (premium afforded to November) usually closes in early trade when Nov takes over as prompt. There is an exception to that expectation and will dive into that year later in the week. For now, focus on 2002, 2005 (do not weight 2005 as high due to the tropical influence) and 2013. Either the Nov contract has to come back to the Oct or the Oct has to chase Nov and diminish the premium.

I was expecting the Nov to decline in the seasonal weakness but it did not, in fact, expanded the premium. The market and prices are clearly indicating something but it is too early to tell. Be aware though of these premiums in your trading decisions.

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

As Expected, Seasonal Weakness Rhymes

Daily Continuation

Was expecting the declines, as discussed, now the market will need to define the lower boundaries of a new range. This may take a series of gains/declines but will likely be met with a reversal off a new low during the coming week of trade. Not sure what is going on with the differed trade and discussed on the Long term section (it did not trade as expected).

Major Support: $2.38-$2.415, $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: 2.377, $2.28, $2.255, $2.195, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809 Minor Resistance:$2.49-$2.51, $2.56

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

Market Continues Consolidation

Weekly Continuous

Last week preformed what a consolidation market should– prices stayed in the recent range (inside to the previous week) with neither a lower low nor a higher high. That allowed some of the technical indicators to moderate as the Weekly RSI retraced from being in the extreme over-bought area, but remains in the over-bought zone. The Bollinger Band study has prices just at the 2 standard deviations above the 20 week SMA, which is starting to correct from it’s recent extreme level of nearly 3 standard deviations over the SMA.

This price behavior and movement is consistent with recent run during August and now it will be important to identify the support zone that the market should establish, likely from the historical weakness in prices during the Labor Day time period.

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

Does History Rhyme or Not

Daily Continuation

As many of you know (who contact me occasionally) I have bee working this run with a series of spreads buying the front and selling the differed months. While it has worked out reasonably well — it has not allowed me the gains to retire. Over the weekend I looked at some of the differentials and will comment on them periodically over the week so stay updated in the Long term section of the web site as I like to keep the Daily — well Daily.

With seasonal history continuing this week expect some additional declines followed by some support buying. As explained over the last few weeks- this is a market that has changed it’s bias and would not expect any major break down in pricing. The outer curve has shown significant support on declines and as long as that sponsorship continues prompt prices are going to have a hard time melting down without the guidance of the differed contracts.

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

Solid Test of Support — Nice Rally Failure

Daily Continuous

Have tried to explain, the market needs to go through these types of trade days to establish the trend. Going up $.10 on short covering and no new length, is not going to bring additional extensions above resistance. So here we sit in a new range between $2.42 and $2.70– perhaps this holds for the near term (especially through the seasonal weakness around Labor Day) but looking at the differed contracts, the expectation of additional gains looks prominent.

Major Support: $2.51, $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: $2.499-$2.468, 2.377, $2.255, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.

Repeat?

Daily Continuation

Prices acted nearly identical to Monday until the end. Unlike Monday, when there was a rebound off of the stale trade around $2.55, yesterday the market behaved more like I thought it was on Monday, by closing just off the lows and the key support at $2.51. This is the consolidation of the runs during August and it may take prices down into the low $2.40’s during the coming seasonal weakness.

Major Support: $2.51, $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: $2.499-$2.468, 2.377, $2.255, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809

To read The Daily Call you must be a subscriber (Current members sign in here. ) Start your subscription today.