Author: Willis Bennett

New Week, Old Market — Expect Tests of Support

Daily Continuous

The breakdown to the 200 day (several other moving averages- see Weekly section) has created a regression to the mean and now expect another probe down (or two) but there are several support areas provided by the moving averages that should limit further declines. Discussed the expansion of premium afforded the November contract in the Weekly section. Expect the October contract to recover some of the losses from last week during trade this week. After the October contract expires, November may well feel some of the pressure that October endured last week.

Major Support: $1.974, $1.944-$1.924
Minor Support: $1.864
Major Resistance: $ 2.162-$2.18, $2.275
Minor Resistance:$2.37

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Prices Return to the Mean

Weekly Continuation

Price action in commodities usually have a regression to the mean after spending an extended period of time at extremes. Trading greater than 2 standard deviations above the 20 week SMA for five consecutive weeks is trading at an extreme. While there was a relaxation of that extreme the week before last, the market was due for a regression at some juncture. Last week, the regression took prices back to the 200 day SMA, the 40 week and the 20 week SMA before finding support.

Monthly Continuation

Currently, the market remains within the extremes from the August price behavior. With all of the moving averages poised in a tight range (a nickel range) just below, an additional break down like last week seems unlikely.

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The Summer Bullishness Has Officially Joined Elvis

Daily Continuous
Spot October Contract

When discussing buying positions at support levels, I mentioned keeping stops near as there were some near term stop areas limiting your risk. Yesterday’s action showed why I recommended such. Had no clue that prices were going down $.28 but there was nothing to show why the support zones should hold on this test. In fact, when the breakout occurred in early August, there was not a lot of zones that the breakout retested. Looking at the Spot October contract, you will see the similarities of the break out with yesterday’s breakdown. Going back to that breakout I think that Elvis has left the summer building.

Now what– in the late afternoon trade on Thursday- prices went down and tested the support trend line from the July and August lows before rebounding. We may see some limited knee jerk rally off of the selloff but I am still more interested in the differential to the November contract which expanded back over $.50 yesterday. There are opportunities in the winter contracts as the market defines its winter bias.

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Storm Brings No Movement

Daily Continuous

As mentioned yesterday, the Sunday gain failed to send prices further up when everyone returned to the office. Prices declined through the trade day on Monday, while yesterday’s action returned prices back where the trade lingered most of Monday. The market seems to be in need of information on the production declines and demand declines (incl. LNG) associated with Sally. My experience has been to keep stops tight during these types of information events.

Major Support: $2.28-$2.26, $2.18, $2.162,$2.089-$2.055
Minor Support: $2.195, $2.102, $1.975
Major Resistance: $ $2.49-$2.51, $2.56
Minor Resistance:$2.37, $2.405, $2.443

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Sunday’s Run Hits a Wall

Daily Continuation

Prices started strong on Sunday as the market opened, continued to rally (up $2.399) but then melted down during the trade day, closing near the lows. Not the confirming signal for additional gains bulls may have wanted. Today, prices should extend the trend from the closing action of yesterday. How far the declines may take prices is unknown as the support zones (numerous) commence just below last Friday’s lows.

Big Move on Sunday

Daily Continuous

Prices started Sunday night up a nickel on some issue. This seems like more than a bounce off of the 50% retracement last week at $2.26, but time will tell. Significant support areas below last week’s Friday close, that the market will have to navigate through. Rallies will just retrace upward through the losses from last week.

Major Support: $2.28-$2.26, $2.18, $2.162,$2.089-$2.055
Minor Support: $2.195, $2.102, $1.975
Major Resistance: $ $2.49-$2.51, $2.56
Minor Resistance:$2.37, $2.405, $2.443

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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.

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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

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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.