Category: Weekly Detail

Weekly Continuous

Lets look at the technical side of trade last week– Lower low testing major support (holds for now) on increasing volume and increasing open interest. That sounds like a market that wants to decline further. The big area is the support zone where trade left last week at $3.00 should it hold then prices may rebound to test breakdown areas at $3.16, $3.25, and $3.32. Further declines will send prices back to the range trade of the late summer ($2.80-$2.64).

Last week’s action was off of bearish weather reports for November but I am not convinced they can get any more bearish and it is likely that weather will change. The bearish start to Q4 prices reminds my of a couple of years ago — but I have to look them up to comment. In the meantime — wanted to have you look at something I wrote to a client last week..

Weekly Continuous

Despite new prompt December’s $.319 premium over expired November at last week’s close there was no expiration gap to begin December’s tenure (as there was on 09/28. Rather than building on that premium as November did, the new prompt immediately began to narrow the difference. December traded lower $.165) but not nearly enough to reach the target zone ($3.16 – $3.25). The price decline then rallied to a higher continuation high confirmed a new short – intermediate trend line.

On a continuation basis prompt gas traded a higher weekly high, began to challenge some old support that was decisively violated during the collapse from the ’22 highs (the December ’21 low and the low of calendar ’22, $3.543 – $3.638, see chart above), and closed at the highest weekly settlement since the first week of ’23. As bullish as that seems, December failed for the third time in four weeks at its 40 – week SMA, ended the week only $.032/dt higher and clearly remains in a range.

Weekly Continuous with Volume

After selling lower prices could not far enough to close the gap from the Sept 28th expiration low and gap ($2.781 – $2.820), soon to expire November flipped, rallied, and filled the gap on the high end from the previous week and then extended the rally another +/-$.20 before fading into expiration. Even with the decline from $3.401 to settle at $3.164 November went off the board $.265 above last week’s close and at the highest contract settlement value since January ’23 at $4.709 in Dec ’22.

Mentioned in the Daily and Weekly reports of the tendency for prices to return to test the breakout level of support (resistance once violated becomes support if the breakout is valid). Prompt gas followed that technical script closely, but while that was going on November remained confined in a range it had created and discussed last week, trading between $2.825 and $3.485. Just before October expiration November tested the lower boundary of that zone. Two weeks after that successful test it tested the upper boundary of that range (trading to $3.471- just short of its August high. The Nov prompt’s strong rally into expiration, a very rare event in 2023, fell well short of that upper boundary $2.401 vs $2.471, and the settlement at $3.164 was just about midway within that range.

Weekly Continuous

Technical analysis holds that once price has broken through the upper boundary of a well – defined range of significant length and done so with internals confirmation of the break, the technical expectation is that the prompt will return to test the breakout level. If the breakout is valid volume during the retracement will diminish and open interest will fall–not necessarily back to the prior low (the total number of contracts outstanding on 09/27 with price at $2.764 was the lowest since 01/30). Support bracketing the old range boundary will limit further decline and prompt gas will trade a higher low and begin to recover for a retest of immediately preceding high. Assuming that price action confirms the breakout level the last low and the higher low will provide anchor points for a new short – intermediate term uptrend. In the current case the upper boundary of the trading range was defined by the March high and then the August and September highs, all between$2.997 and $3.027.

Discussed a comparison to a similar range constructed between Q4 ’20 and Q2 ’21 . Once that construction was resolved to the upside prompt gas did not exactly conform to the expectation of testing the breakout. Rather, trade went very quiet for over two weeks then prompt gas tested support and provide an anchor point for a rising trend line that held over the next four months.

This past week, November started out lower, but rather than retreating enough to at least close the remainder of the “expiration gap” left last Thursday prices reversed from a low of $2.820 and posted a strong gain that was reminiscent of the rally to the August high (from $2.457 then prompt September rallied to $3.018 in five trading days) only to fail. This time the resistance that began to be defined by the March high ($3.027) and was further defined by highs during August and September ($3.018 and $2.997) failed to stem the surge of enthusiasm to buy November gas. By the time trading ended for the first week of October prompt gas added $.409 to last week’s close, putting some distance above last week’s first close over the 40 – week SMA since the peak of the December rally (Chart above). Friday’s extension of the rally also left November above its 40 – week and the continuation 50 – day SMA above the 200 – day for the first time since last November. Cannot define this as anything but positive technical events.

Another of the things that changed this week was that increases in volume and open interest accompanied the rally.You may recall that the lack of coordination between price and increases in the number of contracts outstanding and the number changing hands has been repeatedly discussed in the past (as recently as last week). Agreement of price change and market internals is critical for a sustainable trend. A week ago, their divergence was cited as the reason that the consensus of technical indicators failed to reach positive for the first time in many months. That flaw was cured this week. Higher prices (breakout over $3.02) with higher volume and expanding open interest matches the definition of a technical breakout.

Weekly Continuous

One of the most significant changes that the market provided was that October was bid into expiration and it has been months since we have seen that. After closing lower on Monday the expiring prompt reversed higher, on with pretty decent volume, and went off the board at $2.764, which was $.19/dt higher than September and the highest monthly settlement since February at $3.109. Settlement was notably still below the resistance defined by the June/July highs (the pre settlement high was $2.781), but premiums afforded November quickly changed that.

I spoke, recently, about the premium awarded November had fallen from a historically generous $.502 on 08/15 to $.242. When October went off the board that premium had been further reduced to $.135 ($2.764 v $2.899) which is more in line with the traditional norm but still more than enough to leave the expected “expiration gap” ($2.781 – $2.868) . Continuation resistance ( March and August highs $3.018 – $3.027) proved too much to overcome and now the September high ($2.997) has been added to the formidable resistance zone. The gains left the calendar September close $.165/dt better than the August close and the highest calendar month close since December and Q4 ’22 ended at $4.430.

Weekly Continuous

Prompt Oct remained in the same range October gas opened a little lower ($2.624 v $2.644) and closed a little lower ($2.637, minus $.007). In between there were a couple of tests of support (Monday’s low was $2.600, the value of the trend line rising from the April/May/June lows was $2.598 and another failed test of resistance. October traded an “outside” day reversal after the first test of the rising trend line with increased volume then followed through to the upside, trading a new high for its tenure as prompt ($2.872 v $2.865 on 08/31). The now soon to expire prompt managed to post a new high daily close then that was all she wrote as October gave up the two day gain falling to a new low for the week $2.595 before Friday’s recovery to close at $2.637, a little more than a penny below the continuation 50 – day SMA.

November gave up more (-$.053) as did December (- $.048) and the winter ’23 – ’24 strip (- $.041…a new low close). November has defined its own trading range since late March…+/-$2.825 – $3.300 but this week’s lowest close in 2+ years suggests that the lower boundary of that range nearly corresponds to the upper boundary of the continuation range, is likely to be in for a severe test. Have discussed the possibility/likelihood of November being taken into the extended continuation range and continues to warrant a serious mention. A close below $2.825 increases that likelihood to a probability. November is still awarded $.242/dt premium over October but since its peak on 08/15 that premium has been reduced by half ($.239 v $.502).

Weekly Continuation

When the week started — prices gapped lower and never came close to closing the gap during the holiday week. Discussed the historical tendencies of price action around the holiday with the declines consistent. In some years the decline is severe, some modest, the average of the last ten is about 10%. After closing at $2.765, gap-piing lower on Monday/Tuesday when trading resumed. On Thursday, after trading to the week’s low of $2.500 the prompt reversed higher from support and registered a decline of 12.7% from the 08/31 high. Given that October continued to follow the recent trend on the technical script the guidance is that the trading range will likely continue through at least the remainder of October’s tenure.

The gap left on 09/05 remains open between $2.708 and $2.735, together with a trend line drawn from the August and pre – Labor Day highs will present formidable resistance just below the aforementioned June and July highs. Expect October to close that gap and test the trend line tested over the next couple of weeks. At least as often as not the post Labor Day low turns out to be the low for calendar September and October settles premium to its immediate predecessor (about 75% of the time).

Weekly Continuous

Prices reversed from a new low for September’s tenure and the soon to expire prompt had a gap higher, finding similar selling at similar levels tested earlier in the month. Before September expiration (about exactly midway between the July and August settlement values) the expiring prompt closed the gap and ended with a last two day gain. New prompt October (carrying a $.121/dt premium when September settled at $2.556) the new contract month immediately built on that premium closing on the first day of its tenure at $2.806…right in the middle of the zone of resistance between the June and July highs. October tried twice more to close above that zone (trading to highs of $2.865 and $2.860) but both times ended those trading sessions lower.

The new prompt gas is following the historical technical script fairly well. As discussed prices around Labor Day have a period of weakness on either side of the holiday. The prompt gas tends to rally to a Labor Day high before weakening immediately before or immediately following the holiday period. Most often that weakness leads to a mid – September low. The average of the declines over the last ten years is about 10%.

Weekly Continuous

It certainly appeared that tendency was at work when September rallied to close higher for five straight days from a low of $2.457 on 08/02 up to test the March high, but there has been a different tendency during ’23, to which there has been little discussion here. The only expiring monthly contract this year that has had a semblance of a rally into expiration (a trend contrary to the trend of 2021 and 2022) was July and it lost about a quarter on its final trading day. After printing the June Q2 high on 06/28 expiring July traded an “outside” day reversal to off the board at $2.603. The others either traded the low of their tenure during the last three days before expiration (January, February, March, April, and August) or fell hard from a lower high (May $2.385 to $2.101, June $2.685 – $2.143). The last week there was too much attention to the 08/09 high volume breakout through the June/July highs. Still, despite a new low daily close ($2.486, the lowest daily continuation close since $2.485 on 06/20), trading through all those weekly lows (five between $2.457 and $2.536) and briefly through the 20 – week SMA (currently $2.471) September managed to recover enough to hold the fledgling up trend defining moving average and the trend line rising from the April – May – June lows on a daily and weekly closing basis.

Over the five Fridays of prompt September’s tenure there have been four lower weekly closes. September’s net loss since Friday 07/28 is $.167/dt September giving up its premium plus $.026 at the low daily close of its tenure. It’s not like they took September and shot it. The more interesting elements are that over those same four of five losing weeks the current one – year strip is only $.008 lower. If September is $.167 lower and the strip is only $.008 lower there must be some under the radar allowing strength to occur somewhere. As it turns out, the average of November ’23 – March ’24 is $.037 higher over the same period. Seems to me that is supporting evidence for the thesis that sponsorship for deferred and distant deferred contract months is slowly gathering. For now, there is no doubt that the trading range that confined successive prompts for all of Q2 (perhaps setting up a similar range for Q3), will continue to be the primary consideration (meaning the appropriate strategy for traders to buy weakness – sell strength). Expectations are for the October to give up whatever premium is awarded when September trades its last, but it seems reasonable to point out that every time that prompt gas has traded into the mid $2.40s since the middle of June (prompt in waiting October into the mid $2.50s) the zone on either side of $2.80 has been tested.