Category: Weekly Detail

Weekly Continuous

Some expectations that proved correct was that if August traded through its February low ($2.207) the next support level would be the zone between the March and April highs ($2.009 – $2.092, the January low, $2.037, is also within that zone). It did not take long. Each day’s decline was supported by increasing volume and open interest as August began the test of the same zone that was repeatedly tested during the early spring of ’23 (and had failed to hold during a similar time frame earlier this year). Before a modest recovery, the highest volume since the June high accompanied the lowest trade since May 3rd, and the lowest close since May 2nd.

Clearly, the gas market is in the grips of its traditional Q3 decline (which has carried further faster than suggested here). From the June high prompts July then August have fallen as much as $1.144 from the June 11th Q2 ’24 high (36.2%). Friday’s close was almost exactly 61.8% (Fibonacci) retracement of the rally from the March low to the June high and a prompt contract was back below the 20 – week SMA for the first time since May expiration. From the “expiration” gap that followed May expiration…when the rally really began, to the June high took seven weeks. Over the last six weeks prompt gas has erased all but about a dime of that rally, and the gap is still open between $1.848 – $1.913.

Weekly Continuous

August finished Monday higher for the first daily gain of its tenure as prompt (actually for the first time since a daily reversal higher on 06/24). Some of that support interest in August was a product of late coming shorts covering, but a 13,600 contracts increase in open interest suggests that there was also some new buying. The reversal from a lower low was enough to inspire an extension of the bounce to test first resistance. The value of the declining 40 – week SMA was $2.442, the high for the week was 2.448. Failure at the moving average resistance was followed by three more lower daily closes (making it eleven of twelve for August gas since June 24th (which rivals the nine of ten lower closes that led to the February low). The lowest of the daily closes was $2.269 which was the lowest for a prompt contract since 05/10. Violation of that zone of support would put a big target on conventional support presented by the highs of calendar March and April (2.009 – 2.092, see Chart I) and then the “expiration” gap left after May gas went off the board ($1.848 – $1.913,). My guess is those targets will remain untested until later in this quarter but not right now. It may prove noteworthy that September traded a lower low while it was losing the little bit of premium that had been awarded over August.

With prompt gas having tested and retested the support within that range an intermediate term uptrend began during Q2. That uptrend extended into the band of resistance, but the divergences that have occurred indicates that the sponsorship to break from the long term trading range was absent and an intermediate term down trend (the declines from the Q2 high toward a Q3 low) has begun.

Weekly Continuous

The case was made that conventional and moving average support would provide a floor for the historically consistent price decline bracketing Independence Day — to say the least –it didn’t. Since a day before July went off the board (06/25) amply offered August gas has closed lower for eight straight days. Add to that, the prompt plus the last two of July’s, and at Friday’s low retraced 50% of the rally from the March Q1 low to the June Q2 high.

The historical averages for the seasonal decline (per the chart provided previously) were: 20 years, 16.4%, 10 years, 13.5%, 5 years 13.7%. The following is an update summarizing the recent declines and the results:

August Spot Contract

Prompt August, which had already closed below a short/intermediate – term trend line got off to an inauspicious beginning. On its first day August closed below its 50 – day SMA that it had closed above each day since May 3rd. On its second day the new prompt traded through its to date June low ($2.656 on 06/04) and then its post – Memorial Day low ($2.605 on 05/31)…and settled for the week below both of those of those lows. It is hard to put a bullish spin on that but there are a few mitigating factors. One element that should be made clear is that the behavior last week (and month) did provide an interesting range for the upcoming August contract as shown above. Similar to the July contract, there is a nice double top and now a solid test of the support zone is developing. Expect this range, which falls nicely into the range the market has maintained this spring (Continuous basis).

Weekly Continuous

The expectation was that the expiration process would continue the trend of being well offered and test the major support zone ($2.60-$2.50). It did not quite make it (the expiration day low was $2.613), before settling not so much higher at $2.628 ( a $.135/dt than June). From a technical perspective- prompt gas did test the wider zone of support between +/-$2.450 and $2.640, which included 50% and 61.8% retracement of the rally from its February low and August continued to test that zone after July was off the board.

Weekly Continuous

Been discussing the trend of the contract months that have expired during 2024 have been amply offered during their closing days (March, April and May traded the lows of their tenure on the day they went to settlement). February didn’t but lost $.443 (from high to low) over its last three days. June lost $.507 over its last four days as it fell from $2.924 to test the continuation 200 – day SMA. July would appear to be on a similar path. Expect expiring July to test the zone of support between +/- $2.450 and $2.640, which includes 50% and 61.8% retracement of the rally from its February low, its 50 – day SMA and the nearly flat continuation 200 – day SMA that held near the low of expiring June. A failure by July to weaken into expiration would indicate a change in the character and or bias of supply and demand for gas.

Changes in market internals, specifically volume and open interest, strongly suggested approaching the gas market with extreme caution from the long perspective. Prompt gas had traded higher highs with diminishing volume. The May high ($2.924) had traded with a weekly turnover of 3,378,217 contracts, the June high ($3.159) with 3,047,011contracts. At the same time July traded a textbook double top when it challenged its May high. On May 23rd 258,561 contracts traded, 200,816 when it reversed lower from the June high but lacked the buyers to push it further.

Weekly Continuous

The seven week rally that began following May expiration, has left the gas market severely overbought and delivering multiple clues that suggest the spring rally has run its course. The decline in open interest is one of those clues. Higher price highs without increasing open interest indicating new buying support entering the market, is a form of divergence.

Higher price highs accompanied by lower volume is another (occurring the last couple of weeks) is one that has proved exceptionally reliable over the years. During week ending 05/24 3,387,217 contracts changed hands, this past week a higher high traded with 3,075,538. The high of $3.159 may not be the Q2 high but there is a growing body of technical evidence that will be hard for the market to overcome including in addition to the foregoing:

Weekly Continuation

Spoke a couple of weeks ago about Natural Gas’ tendency to define a bias shift as the price changes direction at a support or resistance area and reverse direction on a high volume week. Now we get a reversal higher last week, from and area that had supported the market previously (just below $2.50) and then found support. The lows of last week were just above the 40week SMA, before finding the bid and running upward to end the week over the downward sloping trend line (from the Nov ’23 high and Jan ’24 highs) that had held the market for the first 6 months of the year.

Volume during the last week was high, averaging 574,278 contracts per day. This was significantly higher than the previous week, but well short of the previous reversal week which averaged over 663,000 contracts per day. Similar to the previous reversal week- open interest declined slightly last week. The reversal last week left prices in the extreme over-bought zone for the Weekly RSI but not the Daily RSI, signalling a slight divergence.

Weekly Continuous

Pre/post Memorial Day price weakness nearly always leads to an early June low followed by one of the most historically consistent rallies during the calendar year. Last week’s declines (expanding the Holiday weakness) was on schedule. Now the question is does the historically reliable seasonal tendency during the early summer of that weakness into June expiration lead to a recovery rally by the July contract in place. Prompt July has traded through the calendar May high in each of the last three years.

Given the high volume weekly reversal just traded week before last expect, June weakened further into expiration…the last four expiring contracts have done so, confirming the recent trend. Given the premium currently awarded to the July contract last week suggests further extension of the Q2 rally. After a “correction”/end of seasonal weakness, expect an historically consistent seasonal rally. The 10 – years average of those rallies is about 17%

Weekly Continuous

Prices rallied last week up to the declining trend line off of the late October high (Nov expiration) and the early Jan ’24 high, before running out of buyers. The Memorial Day weakness that has been recently discussed showed up after a strong close the previous week June opened a little higher and stretched the rally to $2.756. Following a little weakness the prompt traded a high volume reversal to the upside on Wednesday with the most contracts traded in a day since 02/21, and closed at $2.798, the highest daily close since 01/17. June’s close was its second highest this year (v $2.808 on 01/09). The pre – holiday price pressure showed up the next day. June traded into a band of resistance between a couple of mid – late January daily reversal highs (and the aforementioned trend line), where the soon to expire prompt printed what is the odds on favorite for the May high at $2.924 and reversed lower with even more volume. Follow through weakness on Friday left June $.404 off its high just a day earlier…and a high volume reversal on the weekly chart.

High volume weekly reversals have long been the gas market’s favorite method of communicating that it has traded to and failed at a significant, unsustainable (at least temporarily) high. Reversal or not, exceptionally high volume weeks are almost always noteworthy events in the natural gas market. For example, the last three times that more than three million contracts were traded were:

Weekly Continuous

For several weeks the possibility/likelihood of a short covering rally similar to the December/early January rally has been discussed here. This past week’s trade is what a short covering rally looks like. The surprise was that open interest actually increased from Thursday through Thursday (remember that reporting of open interest statistics lags one day). Remember that when a contract is bought to “cover” one previously sold short open interest is reduced by one contract. Rather than falling, the total increased by 519 contracts and if the exchange’s estimate for Friday is anywhere accurate that total was reduced by 287 contracts…an addition of 232 contracts over six trading days when prompt gas gained $.325 on a daily closing basis. This would lead to the logical conclusion that at least an equal number of new contracts were bought to those bought to cover an existing short position…that combination of buying pushed the bid steadily higher, and is when all is said and done, a technical positive.

From its contract low on 04/15 $1.907, June gas has rallied .747 or 39%. The rally from mid – April through Friday’s close is the largest increase in a prompt June contract of the last ten years, but only slightly larger than the ’23 rally ($.654, 32.2%) that peaked at $2.685 on 05/19. As surprising as the extent of the rally from the May low may be, it is still not all that different from a year ago.