Author: Willis Bennett

A lower weekly close and closing the week near the lows– clearly suggests that the market should head lower this week. Still trying to establish whether this market is going to tests the lows of last month, or does it find the buying to set a higher low and continue the thesis that a base is building for the Q2 run. While the continuation one – year strip did not record a lower daily or weekly close ($3.088 vs $3.060) the same could not be said for the summer ’23 and winter ’23 – ’24 both of which closed at a new weekly low. That weakness in deferred contracts (which had held up somewhat better than the nearby contracts) suggests a reduction of intermediate/long – term participant expectations and likely an increase in already substantial speculative short positioning. This actions suggests that speculative shorts are exposed to another and perhaps more significant event than occurred during the eight day period ending 03/03 (when prompt gas closed higher for seven of eight days while rallying from $1.967 to $3.027). Notwithstanding that potential expectation, the acceleration of weakness in the strips with the new low closes, indicate that at least for the near – term the entire maturity curve is likely to be vulnerable to the downside. New low weekly closes for prompt gas and the continuation strip will confirm the indication from the deferred that, at a minimum, the gas market intends to test the February low.

In recent weeks volume has on balance declined during rallies, increased when price fell. This past week average daily volume fell along with price and was only higher one day than the corresponding day the previous week. New contracts continued to be added to total open interest which has increased in all but two weeks since mid – December (both small declines). This week with prompt gas only $.029 lower from Thursday to Thursday (open interest lag one day) a modest 1,345 contracts were added. This is the smallest addition of any of those weeks. Both volume and open interest entered the past week with a price negative bias but earned an upgrade to neutral.

Prices tested and gave up gains as prices tested the moving Avg on the week before. As long as these moving averages are declining, they will provide inviting, low risk sell opportunities, just as they provided similar opportunities during the uptrend last year. Given the dramatic reaction to last week’s first approach I’d guess it will take an extended period of consolidation allowing time for the slope of the declining resistance to lessen and for the construction of a base sufficient to support more than a one or two week rally (higher closes for the last two weeks were the first consecutive higher weekly closes since the first two Fridays of December) toward a traditional spring/summer high…and there is still that requirement that prompt gas find support at a higher low.

Market internals faded to neutral last week after showing at least tepid support for a price recovery in mid/late February. This week average daily volume increased as prompt gas fell and open interest resumed adding contracts after a one week decline (the 13th increase in 14 weeks). A price negative bias was added to both. Volume declined minimally from the previous week.