Category: Weekly Detail

The two day rally failed at the start of the week fell a little short of last week’s high ($2.750 v $2.793), which was lower than the previous week’s high and the rally gains were quickly forfeited. With volume increasing the prompt tested last week’s low but held just above $2.536 ($2.539)…lower trade for a third straight day validated last week’s ideas of lower trade as the post – Independence Day decline was extended to $2.492.

The historically consistent seasonal decline from a late June high (measuring from the 06/20 recovery high of new prompt August), was extended to $.336 or just about 12%. That is a little more than the three and five years average declines, a little less than the average of the last ten years. While the memory of last year’s rocket ride from the post – Independence Day low (from an 07/05 low of $5.325 August ’22 rallied to a 07/26 high of $9.752) is still fresh, the recent price action is more typical of July trade. Declines should be extended a little further before sufficient sponsorship is uncovered to lift August to a somewhat higher expiration. History suggests that over the years August has settled lower than July far more often than not, but August has been higher in each of the last three.

Last week, price action confirmed the previous speculated bias conversion to a bullish market with a couple of declines to support areas and finding buyers prior to achieving the support levels. In the Daily a series of higher lows confirm the Weekly chart above showing the series of higher lows in the last three months. Would suggest buying any dips in price action in the expiration week coming — but that in itself is a risky proposition. Perhaps a more conservative approach would suggest buying dips with built in sales prior to the $3.00 area as that will find significant selling on the first approach. Am traveling this week and next so the Weekly and Daily will be brief until events command more commentary. Key to this week is relax and buy dips to support.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support:$2.47, $2.38-$2.26, $2.17
Major Resistance, $2.707, $2.816-$2.836, $3.00, $3.536, 3.59

I have been dancing around the potential of a bias change occurring the gas market for a couple of weeks with the series of higher lows over the last two months, volume increasing on the positive trade days, increase in open interest in rallies and the breakout of the resistance zones that have held the market rallies for three months. Some of those elements came to fruition last week with break out above resistance in the high $2.40’s and the ensuing run up to the highs from earlier in Q2 on the continuation charts. Some of the buying was clearly short covering as the resistance areas were penetrated.

With the well defined support zone at $2.00 and below the last three months have provide a consolidation base for the current run. Now the question will be how far does the rally run prior to expiration. May high of $2.685 up to the highs for the July contract at $2.707 to $2.816 will likely provide to much selling for prices to extend much beyond.

July continued to closely follow the technical/seasonal script previously discussed. After testing the trend line rising from the April/May lows last Thursday and Friday the prompt rose to challenge the short – term trend line declining from the May highs. The falling resistance trend line was too much of a sell signal and ended the rally. July gave up the gain, traded .004 through last week’s close but stopped short of testing the trend line rising from the April/May lows before recovering to close above the trend line resistance. mentioned last week, a close above the short – term trend line would trigger a test of the intermediate – long term trend line falling from the August/November/December highs. The value of that declining resistance for the past week was $2.383 and the high was$2.380. Also suggested was that the prompt’s first challenge of the resistance would fail which it did. July retraced much of the week’s gain but trading a total range of $.207/dt, and remained well “inside” last week’s range.

It will get very interesting this week when prompt July encountered the trend line declining from the Q3 and Q4 ’22 highs and the trend line from the April May lows (chart above). During the coming week the trend line declining from the August/November/December highs will intersect the trend line rising from the April/May lows. This crowding or convergence of the trend lines is not some kind of magic bullet, but both have substantial technical significant importance.

The expected, July contract gave up the record premium that had been awarded over expired June. The new prompt traded just through June’s expiration low ($2.138 v $2.143) nearly on the the value of a trend line rising from the April/May lows, before recovering a few cents. In four of the last five weeks prompt gas has settled between $2.113 and $2.181 as daily and weekly trend lines steadily made their way to convergence with current price above the February/March/April/May lows ($1.967 – $1.944 – $1.946 –$ 2.031) while volatility continues to decline.

Violation of the trend line rising from the April/May lows (currently $2.144 and rising $.005/day) will suggest another test of the support presented by calendar month lows bracketing $2.00.Violation of the trend line declining from the May high (currently $2.290 and falling about $.04/day) will suggest a forthcoming test of the downtrend defining trend line drawn from the August/November/December highs (currently $2.383 and falling $.186/week). Expect July to successful test both ascending and declining short – term support and resistance.

New prompt July ended the week at $2.417, $.236 premium to expired June. July almost always commands premium over June but $.236 is the most generous EVER awarded. The historical fact is that July almost always gives up whatever premium is awarded usually doing so during the first week of June. Candidly, there is no clue for the reason that July has been bid with historically extraordinary premium, but history tells us that July gives it up, and judging by recent history, pretty quickly.

Since the recovery from the February low, trading just below $2, and the early March failure a few ticks above $3, we have discussed the likelihood of the construction of a range between the two extremes (even though the March low was a hair lower see chart below) . During the construction of semi – enduring price ranges rallies are accompanied by when the appropriate strategy is to ignore short covering rallies and wait to buy weakness that takes the prompt to test identifiable support zones while being wary of premium.

Fourteen of the last sixteen years prompt gas has traded through the calendar April high ($2.529 this year) during May. The remaining two Aprils (’14 and ’19) were “inside” months. Since the prompt trade remained “inside” calendar March’s extremes during April, the April low hasn’t been violated during May since ’06. With technical indicators steadily improving, a reasonable expectation was that June would trade through $2.529, and it did. On Thursday June overcame the declining moving average and conventional resistance to trade through the April high for the fifteenth time in seventeen years doing so with some pretty serious volume.

Major Support: $2.00, $1.991-$1.96, $1.795-$1.766
Minor Support: $2.50, $2.36
Major Resistance $2.543-$2.604, $2.836, $3.00, $3.536, 3.595

Last week prompt June fell to a new contract low as it tested continuation weekly closing support between $2.035 (week ending 04/07) and $2.106 (04/14), but volume fell again, to +/- 1,600,000, close to the same as the week of the April low, indicating that the firepower to drive the prompt back through $2 was also lacking. Opening at $2.148 June traded down to $2.140, the old support level from the week ending 04/21. That early print turned out to be the low of the week, but June tried again on Friday…trading as low as$2.147, before reversing higher accompanied by the highest volume since 04/17 when the prompt traded a nearly identical range ($2.146 – $2.314 v $2.147 –$2.335). Friday’s high volume “outside” day was a positive technical event but is more symptomatic of the final throes of the construction of a low than it is predictive of a significant extension of the rally. Substantial conventional, trend line and moving average resistance.

The consistent range that has held the market for over two months, suggests that the market is trading a “base”, that will ultimately support a significant rally, while the premium that has been awarded to deferred months is steadily compressed, suggesting in the market that its indicative that “natural gas will never rally again”. This sentiment that pervades the gas market will likely be the fuel source for the upcoming rally.