Prices broke through and above some of the key resistance areas that have been identified over the last six weeks. Breaking above the previous April high and are now testing the March high and February highs. I have no concept of what happened yesterday and whether the abnormal large gain in nat gas (vs daily gains of late) had any relation to the absolute obliteration of the May Crude contract– we will have to monitor the press for that insight. What I know is that gas is not at the very high end of the recent range. Does it break above this time (fourth attempt) — perhaps– it may well choose to consolidate at the high end of the range through expiration and allow the June contract (and its premium to May) to take the role– but I think the market has made its intentions clear that higher prices are coming — just not sure what pace.
Major Support: $1.611, $1.555-$1.519 Minor Support: $1.83, $1.78-$1.765 Major Resistance: $1.993-$2.025, $2.062,$2.08-$2.102 Minor Resistance: $1.968
2016/17 Winter Strip Compared to Prompt2020/21 Winter Strip Compared to Prompt
I wanted to bring to your attention the similarities to trade back in 2016 (last long term low) and this year. The two charts are clearly not identical, but often with natural gas, the trade action rhymes over time. In 2016 the market was coming off of a warm summer and the expectation of production overwhelming demand was evident in the price action. Do not want to go into the weeds about fundamental issues, I am more interested in highlighting the technical side of the trade and how history may be rhyming. In 2016 the low of the winter strip for winter 2016/17 traded in late February early March. Once that low had traded prices rallied from $2.45 and established an interim high of $3.04 in early May. This represents a 24% run in just 8 weeks. After a brief consolidation, prices extended the gains into Q2 (historically bullish period) and set the Q2 high for the winter strip at $3.37 in July (37.5% gain).
While the winter strip was behaving with this type of rally the prompt rallies into the summer were much stronger as prices ran from the lows of $1.61 to $2.17 (35% gain) in early May and then continued on to the Q2 high of $2.99 (86% gain) by July.
Look at the current chart comparing the winter 2020/21 to prompt. It looks like the lows were established last month at $2.35 and have been on a solid run since (similar to 2016). The winter now trades at $2.76 (a 17% gain) and should the trade equal the rally in 2016 it would take prices to $3.23 for the strip. While the prompt has not confirmed a low, there are indications that the selling is loosing steam (discussed here last week).
While no year copies a previous years price behavior, the similarities between this spring and 2016 are eye opening. 1) similar fundamental conditions, 2) similar price levels (lows at $1.61 in 2016 and $1.51 in 2020), 3) similar prices in the winter strips ($2.35 this year versus $2.45 in 2016), 4) winter 20/21 strip has started its run. I bring this information on history to your attention and hope it was insightful for your trading strategy.
Market had a nice reversal last week off of the lows discussed on Friday. It closed the week higher for the second consecutive week which are all slightly bullish bias points. What bothers me a little, is the large spread between WTI on expiration and the ensuing June contract. These types of events sometimes represent an imbalance in buyers and sellers and more importantly, those folks who spread positions off of different commodities. Not suggesting that it exists in natural gas– rather it is a concern.
Went into detail on the long term portion of the website bout comparing current prices and behavior to 2016 and would highly recommend a quick read. We are still in a range environment play accordingly.
Major Support: $1.611, $1.555–$1.519, $1.481 Major Resistance:$1.883, $1.993, $2.029, $2.08-$2.10, $2.34, $2.437, Minor Resistance: $1.767-$1.78, $1.833
Spread Between December 2016 and Daily Continuous During 2016
For some reason, my distribution of the Daily yesterday did not go out — we are seeking the solution. Should you not receive the Daily in the future – please go to the web-site and access the Daily there. I highly suggest you read yesterday’s Daily because it references to today’s.
Discussed yesterday the market testing the lows for the sixth consecutive week and on the five previous found sponsorship to rebound. Yesterday makes it six straight. I also have been discussing the winter strip, summarizing the need for the strip to consolidate some of the recent gains by retracing back to $2.70 ish. Noticed today that it traded as low as $2.69, which was good to see. I want to show you how the upcoming December 2020 contract may trade compared to the upcoming summer contracts. Look back at 2016 (the last time prices traded to $1.61), in the chart above, notice how the December 2016 contract was extended to a $1.00 premium over the May contract. Interesting, as the December 2020 contract traded $1.10 over the May yesterday. In 2016, the market closed the gap in the spread over the course of the summer and the closure was from the summer months rising and the Dec 2016 contract consolidating in a range until October. This is another reason why I am not sure you want to chase the winter strip– adding to positions on declines to support may be beneficial over the longer term- but there will be more “bang-for-the-buck” in the upcoming summer months, should prices garner the support to break through resistance.
Daily Continuous
For the sixth consecutive week, prices have traded down below the key support level of $1.61 and into the $1.50’s only to find significant support. Not sure how many more times the bears want to beat their heads against that wall — time will only tell. In the mean time — play the profitable range that started yesterday.
Major Support: $1.611, $1.555–$1.519, $1.481 Major Resistance:$1.883, $1.993, $2.029, $2.08-$2.10, $2.34, $2.437, Minor Resistance: $1.767-$1.78, $1.833
For the sixth consecutive week prices have declined down to (or below) the critical long term support at $1.61. Four of last five the declines had broken below and in only one of the six has prices closed the week below this critical level. It seems that once under $1.61– the buyers start popping their heads above ground. That trend goes all the way back to 2016 when the low was established.
Daily Continuous
Have you tired of me reminding everyone of the $.30-$.40 range trade that has provided income for the last two months– here we are again, continue until it breaks.
Declines continued, taking prices down near the lows of last week. The market was starting to get a feel for higher lows (weekly) but this week may eliminate that. As discussed yesterday, the winter softened a little as, but would more, especially if prices extend below last week. As stated here many times, this is still a range market (prompt) but the bullishness resides in the winter and calendar 2021.
Major Support: $1.611, $1.555–$1.519, $1.481 Major Resistance:$1.883, $1.993, $2.029, $2.08-$2.10, $2.34, $2.437, Minor Resistance: $1.767-$1.78, $1.833
First things first– just a reminder that the Daily will continue free until May 1, 2020 at which time you will need to be a subscriber– please see the website for details.
I wanted to expand on the website Weekly published yesterday, as a couple of you contacted me regarding the significant gains in the Winter strip as compared to the prompt May. I would not advise chasing the winter and the chart above shows why. The strip is over bought and currently in the extreme zone for momentum indicators. It will need to back and fill and test the breakout zone around $2.70 so patience is required. It is becoming clear (with today’s extension) that something is garnering serious support for winter and all of 2021 for that matter. Not immersing myself in fundamentals I am limited as to an opinion but I do read that with the destruction of oil prices and production- some of the associated gas may become an issue. As mentioned– I have no clue– but something is clearly driving interests and the prompt May has nothing to do with it. In fact it remains in the middle of the range discussed yesterday.
Prices closed the shortened trade week with a gain, finishing the week above the highs from the previous week. That is a small element that the bulls can hang their hats on. What is becoming more and more an issue is the solid gains made by the differed contracts (check the abbreviated long term section on the web site). The market, though sending changing bias signals, remains in a range trade environment and the close last week was nearly in the middle of the range ($1.51-$2.00). In the middle of a range like this (coupled with the lack of volatility) I prefer bias bets to be made with options.
Major Support: $1.611, $1.555–$1.519, $1.481
Minor Support : $1.731, $1.833, $1.915 Major Resistance:$1.883, $1.993, $2.029, $2.08-$2.10, $2.34, $2.437, Minor Resistance: $1.833, $1.915
While managing to gain and close higher than the previous week’s high, there are considerable divergences showing up. Recently trade has had increased volume on up days and reduced volume on down days. While not getting the CFTC data on Friday, total open interest has declined significantly (over 320,000 contracts) since early February, with a large portion of those declines coming from the speculative Managed Money short position (discussed on this website several time last month). All of these events have occurred yet prompt prices have largely staying between $1.73 and $1.88. Lower lows since February have not been confirmed with RSI levels (weekly) creating yet another potential divergence.
Winter Strip 20/21
All of this seems to be confirming that the market is in a consolidation phase for the summer contracts. The same cannot be said for the winter 20/21 strip. These contracts continue to show sufficient sponsorship (see Chart above) to close above the 200 day Moving Average for the last seven trade days. This behavior to me suggests the market is slowly coming to the realization that the prevailing downtrend bias that has gripped the front end of the curve may not be around much longer. Look at the premium that June and July carry to the May prompt ($.13 and $.20 respectively), it is also showing a divergence developing in the trade. The period around May expiration will give us a clue for prices near term- as any premium afforded to the next contract has been quickly eroded post expiration.
Major Support: $1.611, $1.555–$1.519, $1.481 Major Resistance:$1.883, $1.993, $2.029, $2.08-$2.10, $2.34, $2.437, Minor Resistance: $1.767-$1.78, $1.833
All the momentum indications showed a test of resistance but that was not a solid test as prices only got within $08 of the key zone. It was interesting that prices fell to the 50 day SMA and found a bid– but I am more interested in the days ahead, as it may provide a key for the direction near term. Let me take this opportunity to wish all of you the prayers and comfort from the spiritual week. There will not be a publication on Good Friday.
Major Support: $1.611, $1.555–$1.519, $1.481 Major Resistance:$1.883, $1.993, $2.029, $2.08-$2.10, $2.34, $2.437, Minor Resistance: $1.833, $1.915
