Author: Willis Bennett

Holiday Prices Bounce Off Support

Weekly Continuation

The current natural gas market is dissimilar to last year (from a technical standpoint) as prices are now developing over-sold conditions from declines that commenced last September.  As the weekly chart (with Bollinger Bands) shows below, the market is now trading at 2 standard deviations below its 20 week moving average (last week’s close) —a level that historically does not maintain the market for very long and usually presages a rally or series of rallies.

Weekly Continuation with 2 Standard Deviation Bollinger Band

It is also concerning, that the declines of late have caught the interests of the speculators.  The latest Commitment of Traders Report has the Managed Money Short positions increasing their short commitments with the expectations of further declines.

Weekly Continuation with Managed Money Short Positions

The increased attention from the speculators to the price action suggests that there will likely be upcoming volatility in the market.  When this group comes into a market aggressively—it sets the market up for violent short covering rallies when the prices find support. Exposure to these rallies should be minimized by a hedging strategy.

Expect rallies off of support and should these rallies break some key resistance areas — forcing the shorts to cover some positions– the rally may become violent.

Major Support: $3.638-$3.536
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

Monday Holiday Brings Support

Daily Continuation

Prices finish last week just off the lows which would suggest weakness in the coming week– that did not occur yesterday as prices opened up and held support during the light trade day. Discuss the market in the Weekly sections– so won’t repeat here — give a quick look. Other than those comments, look for the recent range to continue in the coming week.

Major Support: $3.638-$3.536
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

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Still In the Range

Daily Continuation

Can’t add a lot of flavor about the consolidation range trade that has been around all week. Market started strong in the face of a bearish (expected) inventory number only to have the gains melt away towards the end. May not be able to generate returns in this type[e of market — so sell some premium.

Major Support: $3.638-$3.536
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

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Back To Where We Started

Daily Continuation

Finding a little support prices managed to rebound and soften some of the momentum indicators and other technical indicators — but yesterday’s action sent the market back to where it started the week. As consolidation processes take place the market needs to test both ends of the range in order to develop the upcoming break down or break out. This may take so time — it did last year for four weeks in Dec ’21 and Jan ’22 before the gradual building of support into Q2.

Major Support: $3.638-$3.536
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

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Mitigates Some Of The Extreme Over-Sold Conditions

Daily Continuous

Yesterday’s action was a start to a corrective rally to relieve the over-sold conditions– now the market is likely to range trade to further allow the market to create a base from which to rally from or extend the declines. Due to prices declining at the end of the day — expect them to add to weakness today.

Major Support: $3.638
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

Bull Run (Two Year+) Ends

Weekly Continuation
Monthly Continuation

The uptrend that first began following the June ’20 low, was conclusively ended when the calendar December close for prompt gas was below the trend line drawn from that multi – year low and the December ’21 low (See Monthly Continuation chart above). That does not mean that the gas market is headed to zero or even back to test the last multi – year low, but the downside momentum that began to be generated by the bearish momentum divergences that accompanied the August high is likely to take some time to be completely neutralized. While it may not seem so, price volatility has actually decreased…the weekly ATR (the average range of the last fifteen weeks) has fallen from $1.413 on 07/29 to $1.091, over the last few weeks from $1.155. This week’s range was $.874 the narrowest since mid – November.

That said, a volatile rally is overdue. Over the last four weeks since the seasonal early – mid December high on 12/13, prompt gas has fallen from $7.105 to $3.520 (over 50%). In the process the gas market has finally reached an extremely oversold technical level. The weekly RSI ended the week at 24.29 that has the “leading” indicator, lower than that for one week during October, which was followed by a weekly reversal and a rally from $4.750 to $7.604.

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Declines Hitting Extreme Area

Daily Continuation

The dramatic declines of the last few days, have left prices entering the extreme zone of over sold. Not saying it can’t decline more — just warning that additional declines are likely to to be short in extensions (see Weekly section). Would allow for the rebound that will be coming, at some point, before entering new short positions.

Major Support: $3.638
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

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Declines Continue — Approaching Unsustainable

Daily Continuous

As a trader, the cliff that the market has fallen off of is impressive (see chart) but also not sustainable over the near term as the market clearly is approaching extreme over sold levels. Having profited nicely on these declines, greed usually catches me under-prepared and over-confident. RSI indicators on both the weekly and daily charts are entering extreme zones and the weekly chart is now trading over 2 standard deviations below the 20 week moving average– all warning signs that it may be time to take profits as I doubt they will be giving gas away free in the current year.

Major Support: $3.638
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

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Prices Rebound Off 2021 Lows

Daily Continuous

As mentioned in the Tuesday Daily, prices seemed destined to test some of the lows from December ’21 and that is what they did, but instead of collapsing further, they found a bid. Yesterday, they chose to rally back to $4.22 (still well short of where they were last Friday). All I can and will continue to say is the important historical tendencies of early January trade to prices for the mid-term (see numerous posts from last week and the Weekly section currently). Is the low being established? no clue– but will respect the indications of trade behavior.

Major Support: $4.149, $3.638
Minor Support:
Major Resistance$4.22-$4.39, $4.75-$4.825, $4.948, $5.056

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