Author: Willis Bennett

This past week, November started out lower, but rather than retreating enough to at least close the remainder of the “expiration gap” left last Thursday prices reversed from a low of $2.820 and posted a strong gain that was reminiscent of the rally to the August high (from $2.457 then prompt September rallied to $3.018 in five trading days) only to fail. This time the resistance that began to be defined by the March high ($3.027) and was further defined by highs during August and September ($3.018 and $2.997) failed to stem the surge of enthusiasm to buy November gas. By the time trading ended for the first week of October prompt gas added $.409 to last week’s close, putting some distance above last week’s first close over the 40 – week SMA since the peak of the December rally (Chart above). Friday’s extension of the rally also left November above its 40 – week and the continuation 50 – day SMA above the 200 – day for the first time since last November. Cannot define this as anything but positive technical events.

Another of the things that changed this week was that increases in volume and open interest accompanied the rally.You may recall that the lack of coordination between price and increases in the number of contracts outstanding and the number changing hands has been repeatedly discussed in the past (as recently as last week). Agreement of price change and market internals is critical for a sustainable trend. A week ago, their divergence was cited as the reason that the consensus of technical indicators failed to reach positive for the first time in many months. That flaw was cured this week. Higher prices (breakout over $3.02) with higher volume and expanding open interest matches the definition of a technical breakout.

Weekly Continuous

One of the most significant changes that the market provided was that October was bid into expiration and it has been months since we have seen that. After closing lower on Monday the expiring prompt reversed higher, on with pretty decent volume, and went off the board at $2.764, which was $.19/dt higher than September and the highest monthly settlement since February at $3.109. Settlement was notably still below the resistance defined by the June/July highs (the pre settlement high was $2.781), but premiums afforded November quickly changed that.

I spoke, recently, about the premium awarded November had fallen from a historically generous $.502 on 08/15 to $.242. When October went off the board that premium had been further reduced to $.135 ($2.764 v $2.899) which is more in line with the traditional norm but still more than enough to leave the expected “expiration gap” ($2.781 – $2.868) . Continuation resistance ( March and August highs $3.018 – $3.027) proved too much to overcome and now the September high ($2.997) has been added to the formidable resistance zone. The gains left the calendar September close $.165/dt better than the August close and the highest calendar month close since December and Q4 ’22 ended at $4.430.

Weekly Continuous

Prompt Oct remained in the same range October gas opened a little lower ($2.624 v $2.644) and closed a little lower ($2.637, minus $.007). In between there were a couple of tests of support (Monday’s low was $2.600, the value of the trend line rising from the April/May/June lows was $2.598 and another failed test of resistance. October traded an “outside” day reversal after the first test of the rising trend line with increased volume then followed through to the upside, trading a new high for its tenure as prompt ($2.872 v $2.865 on 08/31). The now soon to expire prompt managed to post a new high daily close then that was all she wrote as October gave up the two day gain falling to a new low for the week $2.595 before Friday’s recovery to close at $2.637, a little more than a penny below the continuation 50 – day SMA.

November gave up more (-$.053) as did December (- $.048) and the winter ’23 – ’24 strip (- $.041…a new low close). November has defined its own trading range since late March…+/-$2.825 – $3.300 but this week’s lowest close in 2+ years suggests that the lower boundary of that range nearly corresponds to the upper boundary of the continuation range, is likely to be in for a severe test. Have discussed the possibility/likelihood of November being taken into the extended continuation range and continues to warrant a serious mention. A close below $2.825 increases that likelihood to a probability. November is still awarded $.242/dt premium over October but since its peak on 08/15 that premium has been reduced by half ($.239 v $.502).