Category: Weekly Detail

Reversal Test the Nov Low Range

Weekly Continuation

The suite of indicators that I try to watch and monitor for three decades, will not tell you where an exact top or bottom is but they will tell you something about danger and opportunity. One of the rarest of all chart formations in natural gas (and most everything else) is an “outside” monthly reversal particularly when accompanied by exceptional volume (an “island” reversal is another one). This months reversal off of the highs now has traded below last months low. The last one occurred during January ’24. The high of that downside reversal was not the high for the year, but it took prompt gas until November to work its way to a higher high. In the entire history of natural gas trading at the NYMEX a total of 427 expired prompt contracts, there has been only one “outside” monthly reversal during calendar December…that one also to the downside from an EXTREMELY overbought technical condition (similar to this year). After trading through the calendar November ’05 high early in its tenure, prompt January ’06 traded to $15.780 on December 13th. On December 28th as it went to settlement that prompt traded through the November low ($10.880). That 12/13/05 high was a multi – year high that has not been tested since.

In terms of absolute price the December 5th high ($5.496) pales in comparison but December ’25 has some characteristics in common with December ’05. In ’05 price had just about doubled from the August low…this year +109% from an August low. Both highs traded within the counter seasonal window during the first half of December (typically, prompt gas trades an early/mid – December low and then rallies…vs an early/mid – December high before falling). And, as you might suspect in both years prompt gas was triggering EXTREME readings on virtually every indicator and threatening momentum divergence.

With all of that said, expectations are that January gas rallies from $4. Not back to the highs or anywhere close, but rallies. In the space of one week prompt gas retraced 50% ($4.059-the week’s low was $4.065) of the rally from the August low and nearly 38.2%. Those are typical retracement percentages in a bull market. The 50 – continuation day SMA is $4.052. That moving average and the retracement levels are substantial mathematical support along with the previous lows of the January contract and there is the expiration gap left on 10/30 that begins at $3.786 and is underpinned by the 200 – days and the 20 – weeks SMAs, a little further down.

Major Support: $4.219-$4.139,$4.083,$4.055,
Minor Support/Resistance : $4.46-$4.42, $3.75,$3.65
Major Resistance: $4.901, $5.01, $5.325, $5.37

Bias Change For Now

Weekly Continuous

In the previous Weekly and Daily writings, the handwriting on the wall that prompt gas would trade a higher high, it was suggested that January’s previous highs +/-$4.95 – $5.05 were likely to present formidable resistance. The zone of resistance did limit January’s advance (for a a few days) but did so with increasing volume and open interest. Price, volume and open interest increasing in tandem indicated that the market was getting a running start at higher highs.

Once January broke through the resistance zone, volatility and the range traded expanded. On Friday the low was $5.027 the high $5.496 (creating the range of $.469). You have to go back a way to find the last time a prompt contract traded a wider range. On March 4th prompt April traded $.495 with 1,094,416 contracts changing hands. That March high that established a higher high with less volume. They may still be counting but Friday’s volume looks to be around 1,107,300

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Expiration Weakness Forms a Bounce

Weekly Continuous

New prompt January, the premium for which had diminished to $.061 (versus $.163 a week ago) reversed higher from a December expiration day low of $4.390 to trade the high for calendar November on the last trading day of the month. This was the second straight calendar month to do so. This week’s close was the highest continuation close since the Friday before Christmas in 2022 and the highest close for prompt January since mid – July (07/18, $4.850 v $4.870, the continuation close that day was $3.565, a timely illustration of how deferred month premium dissipates). 2,013,263 contracts traded that week in July, an estimated 2,218,448 during the past holiday shortened week, which suggests that the high traded during week ending 07/18 ($5.018) is likely to severely tested.

The consensus of technical indicators remains neutral but with an improving price positive bias. The improvement in the “bias” was attributable to an increase, in open interest, the first week over week increase since week ending 10/17 . The primary reason that the consensus steadfastly refuses to reach positive agreement is the severely overbought condition. The weekly RSI has remained well into its historical extreme zone for four weeks. That historically dependable mathematical extreme combined with prompt gas ending five straight weeks more than two standard deviations above the 20 – weeks SMA and is now 37% above the 40 – weeks SMA is not, adding significantly to length. Without a substantial retracement of gains from the October low be patient and seek a correction to add to positions.

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Limited Expectations

I am traveling for the holiday and I can’t get access this afternoon for my charts so please be aware. I will try to update the charts today and publish them on the website. Due to some limitations, I doubt there will be a Daily on Wednesday continuing through the weekend.

Comments on the price movement last week and going forward through the expiration this week;

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Still Over-bought But Moderating

Weekly Continuous

The gains continued last week, the decline in open interest…indicating substantial short covering was a significant contributor to the rally, discussed in some detail last week, continued. Until an increase on Thursday, only the second daily increase since 10/16, the total number of contracts outstanding had fallen for ten straight days. Prompt gas closed higher on 13 of those 20 trading days and only once was there consecutive lower daily closes (three straight between 10/22 and 10/24).

The decline to Wednesday’s low total of contracts outstanding brings the reduction to 200,007 contracts (11.6%) while including a significant contribution from the premium of December over expired November ($.439) prompt gas has rallied, on a daily closing basis, from $2.938 to $4.533 ($1.595 or 54.3%). This represents an epic short covering rally.

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Short Covering Fuels Some of Run

Weekly Continuous

Last week’s gains extended the run that started with the premium afforded the December contract. Total open interest had increased substantially (86,824 contracts over five trading days) while November faded from a 10/08 high at $3.550 to a 10/16 low of $2.922, likely due to aggressive speculative short selling. In the recent weeks prompt gas has closed higher in 10 of 15 trading days with a notable contribution from December’s premium over expired November ($.439), has traded almost $1.50 higher.

December would fail at well – defined resistance provided by the trend line declining from its March – June highs and its declining 20 week SMA. It didn’t. A trend line and moving average violation like that is a serious technical positive. Mentioned it at times during Oct with the Nov contract, but did not occur. During the rally from that above referenced October low open interest has fallen from 1,721,787 contracts to 1,556,062…165,725 (through the 11/06 close, open interest statistics lag one day), 75,982 of that during the five days ending 11/06. Over the sixteen trading days since the peak of open interest the total has fallen in all but one day. To this analyst this is a great example of a short covering run in prices.

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Is It a Reversal

Weekly Continuous

Going to keep this abbreviated as I have other issues with higher priority. Clearly, looking at the chart above you expect commentary suggesting a reversal on the Weekly chart. Not so fast — nearly $.50 of that reversal was the premium afforded at expiration. It may prove out to be a reversal but need to witness after challenges to support. Continue to expect December to fail at resistance, specifically the trend line decline from its March and June highs and its 20 – weeks SMA, Expect December’s premium over expired November to diminish but also expect the new prompt to find substantial support between $3.60 and $3.75.

On more technical analysis expect that prompt gas has traded a higher continuation low…the September low higher than the August low, which is an essential characteristic of an emerging uptrend and the October low higher than the September low. Expect opportunities to buy support during calendar November but expect those opportunities to be fleeting.

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A Slight Bias Moderation

Weekly Continuation

Some reversal earlier in the calendar month (from $3.585 on 10/02 that was confirmed by another reversal from $3.550 on 10/08 for a third time this week’s high was $3.572 and that’s a classic test of and failure at well – defined resistance looks like.

Volume on those three tests of $3.550 – $3.590 has been remarkably similar: 672,699 – 643,006 – 639,225…higher than any other of the trading days during November’s tenure except 10/20 on the gap day. Notwithstanding that a chunk of the 797,173 contracts traded was the result of some folks buying back contracts they had sold short, the gap and the volume spike strongly suggest a high volume low. When November traded into the 10/20 range and tested the 20 – week SMA, (currently the value of that moving average is $3.198, Friday’s low $3.200) it reversed higher, ending the week on a strong note.

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Gap Closed — Declines Extended

Weekly Continuous

November traded down to test the trend line rising from the August and September lows previously discussed recovered, but not sufficiently to close back within the range than had confined it for nine weeks. The lower boundary of that range…+/- $3.09 – $3.10, now becomes well – defined resistance.

The December contract, which continues to enjoy a substantial premium over November (currently $.733, a year ago on the same day December’s premium was $.481), traded down to the upper limit of November’s high volume reversal days on 10/02 and 10/08. $3.55 – $3.59 is well – defined resistance for the November contract and is support for December. Once inside/through that support, expect premium for December to diminish…just as November’s was forfeited. Unless/until December develops the sponsorship to overcome the trend line resistance (declining from its March/June highs) expect it to be guided lower by the trend line and it’s 20 – week SMA The value of that trend line on the December chart is $4.184 and falling about a nickel each week, December’s 20 week SMA is $4.188.

November continues to follow the pattern of the last two Octobers by trading an early high and then falling, although this week’s low on the 17th is a bit earlier. In ’23 prompt November traded its October low on the 23rd which was a higher low, higher than the September low which was higher than the August low. In ’24 November traded its first low after falling from a 10/04 high on the 21st. Just like this year November traded a daily reversal from that low and rallied smartly (from $2.210 to $2.582) but gave up the gain leading into expiration. From a trade perspective –be alert for a short covering rally but expect the same pattern to continue through October ’25.

Major Support: $3.06, $3.00-$2.97, $2.843, $2.727, $2.648
Minor Support :
Major Resistance:$3.167, $3.19, $3.39, $3.62, $3.80-$3.85, $4.168, $4.461,

Reversal of the Reversal– Hello Range

Weekly Continuous

With the holiday today I am going to limit the commentary in the Weekly and Daily. The range traded on October 2nd was $3.402 – $3.585. November managed a higher close on Tuesday ($3.519) but volume was about 60,000 contracts less than the 10/02 reversal day. After extending the recovery to $3.550, .03 short of last week’s high, November collapsed (putting another high volume reversal day in place and further defining and strengthening the resistance zone. Total open interest fell on both the 10/02 and 10/08 reversal days, which strongly suggests that short covering and contract liquidation were significant contributing factors. Simply put, there was not nearly enough buying interest for prompt gas above $3.500 to support further extension of the rally or to prevent the significant reversals to the downside.

For the last nine weeks November has been confined in a well – defined range between +/- $3.10 and $3.50. The last weekly close outside that range was the first Friday of August. Last week, since trading the two daily lows that began construction of the lower boundary of the range, the current prompt has been briefly offered below that lower boundary twice…consecutive days on 09/22 & 23, and has now failed twice above the upper boundary. This week’s lowest close with the highest volume of any week during the consolidation is an indication that November will be offered lower again.

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