Author: Willis Bennett

Last week continued the process of developing a consolidation process that will either lead the market to a break out (above the $2.029) area or a failure and a break below the key support area that has held prices for two months and four tests. An interesting note on trading, for the last three months, failure at the key resistance ($2.029) or near it resulted in an immediate test of support (within two weeks) as traders were content in working the range. Last week, prices could only manage a slight decline to $1.59 in the light trade around May expiration, before making another run at resistance. This action has now set the constructive behavior of higher weekly lows and another higher weekly close. Some of this behavior is clearly linked to the $.10 premium that June was awarded on expiration.

It you are bullish one of the concerns for you to overcome is the lack of volume last week. Markets successful in making a bias change usually occur with a volume break out in the direction of the upcoming bias shift. The continued strength in the differed contracts offsets this concerning issue and suggests the bullish argument more of “when” rather than “if”.

Calendar April ended as an “inside month” which is the first time that the trade range in April has remained inside he extremes provided during March since 1996. The high for the week was early on Friday morning, May 1st. Technical theory has suggests that and “inside” trade with falling volume (discussed above) and closing the month near the highs of previous period ($.03 shy of March high) is constructive for the intermediate term. Think of it as the sponsorship need to drive prices though the previous month’s extreme was lacking but closing near the highs — the balance of power was shifting.

Major Support: $1.611, $1.555-$1.519
Minor Support: $1.794, $1.78-$1.765
Major Resistance: $1.993-$2.025, $2.062,$2.08-$2.102
Minor Resistance: $1.968

A series of close weekly closing prices have occurred during the May contract as prompt. Closing prices have been within a range of $.02 over the last three weeks ($1.733, $1.753 and $1.746). The two previous weeks were at $1.634 and $1.621. This type of price behavior usually precedes a significant price move as it has a tendency to bring attention to traders (yes we look at these elements in trade). In natural gas the last time this type of tight weekly closings was in December when there were four weekly closings ($2.281-$2.334) before prices before prices broke down and added to the recent Q1 declines. The previous tight weekly closes occurred last summer when prices constructed a tight weekly range between $2.119 and $2.169 over three weeks (July and August). This set up the rally to the September high ($2.71) and the eventual Q4 high of $2.905. I will be getting into the expectations of the June contract, as prompt, during this week with the final outlook next Sunday.