Author: Willis Bennett

A New Range Likely to Develop

Daily Continuous

With last week’s bias change (see Weekly section for details), it is likely that the market will try and redefine a new near term range for the September contract between $2.67-$3.01. Would trade this range accordingly for the upcoming week or so. Remember that the Labor Day weekend is historically a weak period for prices (either before or just after) so adjust expectations accordingly. Several of you have asked about the upcoming winter prices and hedging ideas – while I don’t publish them in the web site — I may provide some analysis about the winter strip later in the week.

Major Support: $2.47, $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support $2.74, $2.38-$2.26, $2.17
Major Resistance $3.00, $3.536, 3.59

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A Defining Week

Weekly Continuation

The market has prompt gas construct and remain confined within a tight trading range about a third as wide as the range constructed between the range traded during calendar March for a while. The expectations were that prompt September would remain within that range for the duration of its tenure. Then there were four straight weekly lows between$2.457 and $2.492 (and others in the neighborhood), and the tendency of September gas to trade the low of its tenure in early August, fed the bias is that prompt gas is winding up for a run later into the quarter. Well I did not see was the likelihood of a short covering event the likes of which I can’t recently recall.

Open interest (the total of contracts open in the market) has been falling since a peak of 1,389,864 on June 6th (4 days after the June low at $2.136). As written here many times, when open interest falls while price increases the presumption is that participants buying contracts to offset those previously sold short is a significant contributor to an increasing bid. Since that June low prompt gas had traded as high as $2.839 (the June Q2 high) as the liquidation of open interest remained a more or less orderly process while the weekly closing trading range between +/- $2.47 and $2.80 was constructed. That ended this past week.

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On Cue

Daily Continuous

My discussion and expectations were accurate, as prices retraced the previous gains and tested (closed) within the area of resistance that had held the market gains for last few months. Key question remains does the new support zone (old resistance) hold the declines like it held the gains. My best guess is the the market will be forming a new range with the new support zone being defined in the near term.

Major Support: $2.47, $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support $2.74, $2.38-$2.26, $2.17
Major Resistance $3.00, $3.536, 3.59

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Breakout

Daily Continuous

A little surprised that the break out to the highs from Feb occurred this early in the September prompt (was expecting it after Labor Day) but perhaps that timing will provide the next leg in the current run. Nevertheless, yesterday provided the proof of what has been suggested here for a couple of months – that a series of higher highs and higher lows, is signalling the gradual demise of the bear market in 2023. What is next — storage report will be interesting to watch what occurs after the gains of yesterday — but my expectation is a retracement of the gains during the trade and a test of support provided by the old range.

Major Support: $2.47, $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support $2.836-$2.81, $2.38-$2.26, $2.17
Major Resistance $3.00, $3.536, 3.59

This Week It Is the High End

Daily Continuous

Last week the market tested the low end of the range and closed the day just off the lows– this week prices are testing the high end of the range and close yesterday just off the highs. Explained last week that the price action was great for the traders and it continues to be. My only concern is when does the high end break out or when does the low end break down. For now .. it is the potential break out to higher prices.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support:$2.52-$2.47, $2.38-$2.26, $2.17
Major Resistance $2.816-$2.836, $3.00, $3.536, 3.59

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Price Action Decides to Challenge Resistance

Daily Continuous

It didn’t take long for the market to rebound and run a little off of last week’s test of support and start to challenge the the near term resistance. Did not expect the run as quick nor as decisive as it was– but here we are. Find it interesting that some of the pundits have started to adjust commentary to more bullish aspects of the market (heat continuing, Russia cutting gas to Europe and storage still at a surplus to averages — now later has become a concern) but if my suspicions are accurate — you will see a test of last months highs coming.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support:$2.52-$2.47, $2.38-$2.26, $2.17
Major Resistance $2.754, 2.816-$2.836, $3.00, $3.536, 3.59

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Near Term Support Holds

Weekly Continuous

Last Week’s low broke slightly lower than expiration week, as September did trade a lower low ($2.457 vs $2.463 previous week. That extends the seasonal Q3 decline to 13.5% from the June Q2 high ( less than half of the ten year average for the decline) and goes into the books as a violation of the July low for the fourth straight year. The absence of any follow through after trading a lower low says something about the support that we have talked about for the last several weeks. Prompt gas hasn’t traded an “outside” August (trade through both the July low and high) since 2010 but back then it use to do it on a regular basis (’10, ’09, ’07, ’02 and ’01). Given the “recent” history trading through $2.793 (the July high) seems like a low probability event.

For the fourth straight week support above $2.450 limited any further decline. The last lower low was $2.448 on June 21st. The prompt did start out a little stronger (trading to a high of 2.693) after settling the previous week at $2.638 but quickly failed. For eight straight trading days prompt gas failed within the range of the last high volume day (July 20th) when a few more than 500,000 contracts traded. The high that day was $2.789. Trading highs within the range of a high volume day is characteristic of the continuing consolidation and construction of a trading range. The zone between the July high and the June high, $2.839, forms the upper boundary the recent range.

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Range Continues to Hold

Daily Continuous

Prices stayed in the near term range (discussed in the Weekly Section) last week and I will expect the continuation of this pattern for the near term. Know it is boring and not a lot of revenue potential but it can provide good opportunities selling premium in the options market.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support:$2.52-$2.47, $2.38-$2.26, $2.17
Major Resistance $2.754, 2.816-$2.836, $3.00, $3.536, 3.59

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Trader Heaven

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If you are a trader you have to love this action. Prices decline to test the support level then immediately rebound. My question is where does this rally take prices to– stick with the range and the mini-range from last week for the resistance area just beyond $2.70.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support:$2.52-$2.47, $2.38-$2.26, $2.17
Major Resistance $2.754, 2.816-$2.836, $3.00, $3.536, 3.59

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Tests and Closes the Day at Mid Term Support

Daily Continuous

Just when I made the comment about the boring aspects of the market it decides to break lower and test the support zone from the middle of June that has held the market since ($2.47). Now what happens — do the bears force declines to the $2.20area or does it find buyers for a short term bounce.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support:$2.52-$2.47, $2.38-$2.26, $2.17
Major Resistance $2.816-$2.836, $3.00, $3.536, 3.59

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