Author: Willis Bennett

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.

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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

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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.

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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.

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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

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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

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Rebounds Off Of Support

Daily Continuous

Expected the decline to support levels but the $2.50 area was minor support (have changed that now), then prices rallied significantly later in the day. Not sure why the late rally, but now prices are challenging that key area where they failed last week (see Weekly analysis). What ever sparked the late day rally — it will need to garner significantly more participants to break through the Island Reversal resistance area.

Major Support: $2.51, $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: $$2.621-$2.598, $2.499-$2.468, 2.377, $2.255, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809

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Failure At Key Resistance

Daily Continuous

The price run for the new prompt failed at the key resistance dating back to last Nov. Recall how prices reversed off the high and opened with a small gap (now $2.743-$2.755) and that gap formed the Island Reversal suggesting that prices were headed down. Oddly, that gap was not closed on Friday, in spite of the premium handed to the Oct contract as prompt. This (resistance) should be a key area for prices in the near term as we head into one of the weakest periods of the year for natural gas prices. I would expect prices to retrace into the expiration zone for Sept gas (perhaps a nickel above or below $2.50) during the holiday period short of some fundamental event occurring.

Major Support: $2.186, $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: $$2.621-$2.598, $2.51, $2.499-$2.468, 2.377, $2.255, $2.102, $1.975
Major Resistance: $2.743-$2.755, $2.809

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A Friday With Consolidation

Weekly Continuation

Some noteworthy events occurred last week with the expiration of the Sept contract. Expiring at 2.579 (highest settlement since last Nov), the 2020 Sept contract jolined three other years in the last twenty years to remain well bid into expiration. The historical trend is for weakness to carry the market during the Sept expiration due to its proximity to the Labor Day holiday. In each of those three prior, Sep contracts that were well bid were, in ’02 a reversal from the Q3 ’02 low confirmed an uptrend that did not culminate until a Feb ’03 spike above $11.00. The second year was in ’05 and hurricane drama events took prices on to a December spike to over $15.00. The third year was in August ’13 when a bounce off of the Q3 low did not end until the following February (very similar to ’02). Due to the similarities to historical events it may be prudent for traders and hedgers to understand that with natural gas price movements sometime rhymes.

Weekly Continuation with RSI

Have been discussing the last couple of weeks, the need for extended bull markets to “feed the bull”. This event is confirmed with gaining open interest on higher volume. While prompt gas has closed higher for four consecutive weeks, volume has steadily declined and open interest has continued to decline over the period with short positions having to cover. These two events occurring will not support an ever increasing price level.

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Powerful Close

Daily Continuation

Stronger close than I was expecting, but this market is just running along with little or no serious consolidation periods. Not sure if it will continue, but I am still expecting a period of consolidation taking prices down to $.20-$.30. The upcoming period of the year (Labor Day period) has been one of the weakest of the year historically. Should prices not conform to the period’s history — then it is likely we are headed significantly higher. The gains of the last few days have occurred on lower volume and declining open interest (not surprising with contract expiration) which is not supportive of building a base for extended rallies. Weekly RSI (lagging momentum indicator) is approaching extreme over bought levels and the weekly Bollinger Band study remains nearly 3 standard deviations over the 20 WK SMA (not sustainable over time). Be aware over the next week.

Major Support: $2.162, $2.089-$2.055, $2.029-$1.937, $1.86, $1.527,
Minor Support: $$2.54-$2.51, $2.499-$2.43, 2.377, $2.255, $2.102, $1.975
Major Resistance:$2.588, $2.709, $2.74, $2.809

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