Category: Weekly Detail

Range Events Create Limited Analysis Insight

Weekly Continuous

Previously, the low of May’s tenure was $1.686 ( inside the targeted zone of support, on its second day as prompt). This past week May finally took a couple of shots at closing the “expiration” gap left open on 03/27, neither quite made it. On the 16th May traded to $1.649, on the 17th to $1.660 which leaves a remnant of the gap between $1.647 and $1.649 still unfilled. Perhaps close is good enough natural gas does not like a vacuum, do not be surprised if May completes the task during its last week.

Contrary to that expectation is May’s reaction when it came close -the first time it ripped higher, trading to $1.802 in less than an hour. During the hour before May printed the week’s low 14,008 contracts traded, during the hour that low and reversal traded 50,239 (which makes me think that more than a few participants were paying attention to that gap and scrambling to get out of positions). Since May faded into the close setting up another test (total open interest fell for the first time in five days) it could only have been short covering, but $.153 in less than an hour serves as a good example of how quickly prices can disappear in a thin market.

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Working Hard For the Money

Weekly Continuation

The week before last week, gas traded a total range of $.200, further defining already well – defined support and resistance this last week it traded a range of $.212. This last week after opening a little lower May reversed, rallied through last week’s high only to fail at its 50 day SMA and a trend line declining from its late January and early March highs. A daily reversal on 04/10 (very similar to the reversal traded exactly a week earlier on 04/03), preceded the largest daily loss of May’s tenure and with the highest volume. Support near the upper limit of a zone between May’s February and March blocked a test of the target zone ($1.600 – $1.700, and the “expiration” gap left on 03/27 .

The entire range traded during April, ($.237) is less than half of the range and well within the extremes traded during March ($.528, $1.481 –$2.009). The range traded during February was $.657, in January $1.355. Range contraction typically occurs, at or near the end of a downtrend as a “sold out” market attempts to define a base. Less common is a high volume price spike lower, which is characteristic of “capitulation”, followed by reversal also with significant volume. Given the persistent, extraordinary level of open interest the less common resolution not completely out of the question, but recent trade has the earmarks of the construction of a classic base.

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Spring Trade Action Similar to 2020 and Last Year

Weekly Continuous

Current patterns are showing some consistency to trade last year and back in 2020, as the market is stuck in a consolidating trading pattern (though at different price levels) during the late winter early spring time period. Prompt gas has a history of finding some support in the spring. From a Q1 low (which traded on 03/26), the ten years average rally is about 50%. Last year from a low traded on 03/29 at $1.944, the successive prompts rallied prices 46%, but it took until late June to achieve that increase. Most of last spring the gas market traded in fits and starts but did trade higher monthly lows in April, in May and in June. Prompt gas rarely trades a lower low during calendar April than it did in calendar March (once since 2016).

Some of the technical indicators have marginally improved in both of the last two weeks but remain negative. Mathematically based momentum indicators (none of which confirmed the April expiration lower low) continue to suggest bullish momentum divergences. Divergences are not critical to a major shift in bias, but ignoring them leaves you at peril.

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No New Bias Definition

Weekly Continuation

April expiration was similar to March, but April’s spike lower was a little different. The trade to $1.481 was the low of April’s closing range whereas expiring March reversed higher, trading as high as $1.720 before fading to settle at $1.615, April appeared amply offered through the process. Settlement at $1.575 was $ .04/dt below March (significantly different from March settling $.875 below February) and was the lowest contract month settlement since July ’20 went off the board at $1.495.

April’s last minute spike lower had the earmarks of a classic capitulation low except that a volume spike was missing. With that critical difference noted, trade for the holiday shortened week had a striking similarity to the week March went off the board. With the premium awarded new prompt April the weekly continuation chart showed an “outside” week reversal higher (noted at the time also without the requisite volume ). Even so, April rallied to trade the calendar March high at $2.009 before retreating to close the “expiration” gap left between $1.720 and $1.782 on 03/12.

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Average Trade Range Narrows — Expiration Coming

Weekly Continuous

A second straight weak weekly close strengthens the technical presumption that prompt gas will be offered lower before April goes off the board. Readers may recall that expiring March traded the low of its life before reversing higher the day it went to settlement, February didn’t but did settle at a five day low.

It has been a long time since prompt gas traded a total range of $.122 during the week and even longer time since the average range for the last fifteen days was $.101. In late July last summer, the low ebb of the ATR did not quite reach the zone. The low calculation was $.117. The daily continuation chart shows that there was something of an immediate oversold rally but on balance prompt gas worked sideways to higher for a couple of months before kicking off on the Q4 ’23 rally. The low calculation on June 24, 2020 was $.0739, on April 28, 2021 $.0731. The periods that followed those calculations were strikingly similar, as price moved sideways to higher. The low volatility sideways to higher trade gave the lagging weekly calculation the time to catch up. In ’20 the weekly ATR fell to $.237 before a serious rally began. In ’21 to $.187 before a similar result. Currently the weekly calculation is $.396. Due to the ATR covering 15 weeks, another month will have to pass before the high range weeks that traded during January fall out of the calculation, but it will not take many weeks with a range of only $.122 for the weekly ATR to approach its historically bullish zone.

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March Has Action but Going Nowhere Slowly

Weekly Continuous

This is sure exciting-Price action found a decline at the start of the week to the area of support between $1.60 and $1.70. From there a bounce occurred and traded traded as high as $1.774. As that small bounce was occurring, volume was lower. By Friday. the prompt returned to retest support at between $1.643 and $1.651. All that action and nothing happened.

Volume and open interest increased as the prompt fell at the front of the week but the trend changed with the turnover diminishing on Friday. Perhaps this suggests that sellers below $1.650 might be more cautious. Notwithstanding that potential, given the weak ending close a contract low close for the April contract , the technical presumption is April will likely head lower.

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A Ying and A Yang To The Market

Weekly Continuous

Perhaps it is why it is been in a range of late– April gas traded a little less then $.25/dt range this week (the average range of the last fifteen weeks is .41/dt/wk). After first testing very clearly defined resistance just north of $2 (the zone of resistance between those four monthly lows from around this time last year and the historically important January ’24 low (+/- $1.965 –$2.037), the prompt reversed course after trading to $2.009 and fell to slip the “expiration” gap left on February 27th narrowing it to $1.720 – $1.755. Having tested resistance and then support April ended the week quietly. Friday’s range was only .082, the close .03 lower than a week earlier.

The previous week had a reversal off of the expiration low but the flaw in the almost always significant weekly reversal was a lack of volume. Average daily volume fell more than 80,000 contracts during the reversal week. This week following a test of resistance…which was almost guaranteed by the upside reversal, April fell with increasing volume. Volume on Thursday, when more than 600,000 contracts changed hands with the prompt closing $.111 lower, was the highest since 02/22. This week’s trade with a close lower than the open after trading a higher high is also a reversal…and given the significant increase in volume largely neutralizes the wider range reversal traded the prior week. The close in the lower quadrant of the range traded with increasing volume and open interest is a strong suggestion that April is destined to trade lower, the question is now or later in the month.

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Perhaps the Time Is Coming

Weekly Continuous with RSI

The support held that I mentioned last week. After the quick trade deep into the zone of historical support expiring March rallied about $.20/dt before fading to go off the board at $1.615, $.875 lower than February settlement and the lowest monthly settlement since July ’20 at $1.495 after trading the June ’20 multi – year low. From there prices reversed higher to record the largest one day gain of its tenure as prompt.

Rather than immediately forfeiting its premium over expired March ($.193…which was almost a dime more than at last Friday’s close and $.083 more than a year ago) the new prompt traded stubbornly above its “expiration” gap and rallied to test resistance expected to be presented by its highs of the last two weeks ($1.877 –$1.890, ). From its close a week ago April traded $.219 higher, to $1.918 and closed above the continuation 20 – day SMA for the first time since January 17th and found support at that moving average through the end of the week, closing $.136/dt higher.

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No Change Yet

Weekly Continuous

Though nothing was defined as changing the lower low on continuous prices and lower RSI (momentum indicator) confirmed that the bias is still bearish. In the Daily Continuous with RSI you will notice a lower low in price but not confirmed in the RSI- the first steps in creating a potential bottom. Lets review the last week:

After the long weekend March gas gapped lower -down into the support zone between $1.500 and $1.600, and to $1.522. From there prices reversed higher to record the largest one day gain of its tenure as prompt. A round of pre expiration short covering propelled extremely oversold March (mentioned previously) to back to back daily gains. From there the short lived rally predictably failed just above the a continuation trend line declining from the January highs. The now soon to expire prompt gave up all of the modest gain to end the week $.006 lower. March’s sixth straight weekly decline left prompt gas still within the zone of support that limited declines in ’96, ‘97, ’98, ‘ 99, ’01, ’15, ’16 and ’20.

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Perhaps A Change Initiating

Weekly Continuous with RSI Study

March closed the day higher by $.028 for the first time after nine consecutive lower daily closes since the reversal following the failed trend line violation on February 3rd. Since February expiration March has closed lower in all but three days of its tenure as prompt. This past week, on the 8th day of those nine straight lower closes March traded into the historical support zone that has been defined as $1.50 – $1.60, trading into that zone for the next two trading days, trading as low as $1.573 closing below $1.60 once.

The daily ATR (essentially the average daily trading range for the last fifteen days) has fallen from $.312…the highest calculation since 02/02/23, to $143. This is the lowest calculation since 12/11/23 ($.133), two days before the beginning of the rally that 18 trading days later resulted in the January high ($2.235 – $3.392). While March has been the prompt contract total open interest has increased more than 140,000 contracts (the total number of contracts outstanding had already increased more than 117,000 contracts from 12/26 to 01/30). Together those increases (257,216 contracts) bring the total of contracts outstanding to 1,611,826, the highest total since 10/19/18 which was just before an extension of the Q4 ’18 rally from $3.102 to$4.929 that took just thirteen trading days.

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