Category: Weekly Detail

In my absence, prices decided to test the support at the Feb lows and break below it briefly. There have been some ugly monthly ranges traded since prompt gas turned down last August, the chart for calendar March is as ugly as any. After a technically positive calendar February prompt April promptly traded through the previous month’s high on March’s first trading day then before its tenure was over plunged through its low creating the first “outside” March since 1998 and the first ever to reverse to the downside (in ’98 the prompt first traded through the Feb low before rallying through and closing above the Feb high). The continuation monthly bar could have only been uglier if the close had been below the Feb low which owing to May’s premium over expired April and Friday’s only higher daily close of this week,, it wasn’t. The monthly chart of May gas did achieve that benchmark and is even uglier as it closed lower for the week, month, and quarter below its February low.

As patently bearish as the market seems, and expecting the consensus of technical indicators had weakened further from the prior week’s negative to neutral bias “ to outright negative, close examination indicated that was not the case. Almost none of those indicators confirmed the lower price low which either means they are out of step with reality and need time to catch up although recent price ranges have been relatively modest so that should not be the case, or the subsurface dynamics are diverging from the persistent price weakness. For example, last week average daily volume accelerated as April fell toward a new low weekly close and as has become the custom closed below the previous week’s low. Market internals…volume and open interest, which also continued to increase as price fell, strengthened the technical presumption that April would be offered lower before going off the board.

A lower weekly close and closing the week near the lows– clearly suggests that the market should head lower this week. Still trying to establish whether this market is going to tests the lows of last month, or does it find the buying to set a higher low and continue the thesis that a base is building for the Q2 run. While the continuation one – year strip did not record a lower daily or weekly close ($3.088 vs $3.060) the same could not be said for the summer ’23 and winter ’23 – ’24 both of which closed at a new weekly low. That weakness in deferred contracts (which had held up somewhat better than the nearby contracts) suggests a reduction of intermediate/long – term participant expectations and likely an increase in already substantial speculative short positioning. This actions suggests that speculative shorts are exposed to another and perhaps more significant event than occurred during the eight day period ending 03/03 (when prompt gas closed higher for seven of eight days while rallying from $1.967 to $3.027). Notwithstanding that potential expectation, the acceleration of weakness in the strips with the new low closes, indicate that at least for the near – term the entire maturity curve is likely to be vulnerable to the downside. New low weekly closes for prompt gas and the continuation strip will confirm the indication from the deferred that, at a minimum, the gas market intends to test the February low.

In recent weeks volume has on balance declined during rallies, increased when price fell. This past week average daily volume fell along with price and was only higher one day than the corresponding day the previous week. New contracts continued to be added to total open interest which has increased in all but two weeks since mid – December (both small declines). This week with prompt gas only $.029 lower from Thursday to Thursday (open interest lag one day) a modest 1,345 contracts were added. This is the smallest addition of any of those weeks. Both volume and open interest entered the past week with a price negative bias but earned an upgrade to neutral.

Prices tested and gave up gains as prices tested the moving Avg on the week before. As long as these moving averages are declining, they will provide inviting, low risk sell opportunities, just as they provided similar opportunities during the uptrend last year. Given the dramatic reaction to last week’s first approach I’d guess it will take an extended period of consolidation allowing time for the slope of the declining resistance to lessen and for the construction of a base sufficient to support more than a one or two week rally (higher closes for the last two weeks were the first consecutive higher weekly closes since the first two Fridays of December) toward a traditional spring/summer high…and there is still that requirement that prompt gas find support at a higher low.

Market internals faded to neutral last week after showing at least tepid support for a price recovery in mid/late February. This week average daily volume increased as prompt gas fell and open interest resumed adding contracts after a one week decline (the 13th increase in 14 weeks). A price negative bias was added to both. Volume declined minimally from the previous week.

Prompt gas finished higher for a second week and the third time in the last four. Consecutive higher weekly closes have not occurred since the rally from the October low and prompt gas had not been higher in three of four weeks since the portion of the rally to the August high. Those rallies failed but failure currently will just test support zones not the declines we saw in the fall (sorry — don’t see prices to zero).

Weekly charts give useful information for purposes of hedging and term positioning vs Daily charts which are quick snapshots of what short term actions are coming. For an intermediate/long – term perspective the monthly charts are invaluable for filtering out distracting trading “noise”. For example, the June ’21 breakout through the Q4 ’20 high was an ominous warning of an extended period of higher prices. Last summer there was a warning of a different type, this one in the form of an extremely rare monthly event which was back to back “outside” months during calendar June and July (it is unusual if that occurs on a weekly basis at the least). That event was noted at the time along with a discussion about weekly volatility. Rare monthly events always send a message. The market may have sent another one by the price change during February.

After trading to $1.967 March rallied into expiration to settle at $2.451 (+$.484). Even with positive closes for its last two trading days, it was the lowest contract expiration since October ’20 settled at $2.101. It doesn’t seem like much, but prompt March rallied to close higher in two of the last three weeks, perhaps a redefining event– more importantly, the deferred contracts rallied a fair amount more than they did two weeks ago. For example, when March ended week ending 02/10 $.121 higher the summer strip was $.099 higher, winter ’23 – ’24 $.020 higher. This week with prompt gas closing $.176 better the summer was $.203 higher, winter $.128. Given the magnitude of the declines in those strips over the last few months, that may not seem like a big deal, but perhaps the gas market is beginning to change.

Following that first print under $2 since prompt gas spent about a week there while constructing the September ’20 low, March reversed higher accompanied by increasing volume (due to the Holiday shortened week I will us the average daily volume did increase modestly) Tuesday – Thursday was greater than the corresponding days the prior week when March was falling. Weekly reversals more likely when they begin from an undercut of a previous weekly low and an extremely oversold condition, have long been the gas market’s preferred method of communicating that the price pendulum had swung too far one way or the other. Often those reversals create momentum divergences because mathematical indicator. In this case the the weekly RSI, didn’t have time to catch up to confirm the lower price low (these divergences have been discussed previously).

This week’s decline left the March contract and the deferred contracts below all closely watched moving averages. These levels have the weekly closing price at lows not seen since late September ‘20. Readers are no doubt familiar by now with the technical presumption that arises when price ends the week below the prior week’s low. More meaning is added to that presumption when the close is at a multi – year low. discussed last week about the market developing a “bases” or a consolidation range for which prices can rally or decline.

Primarily because of the gas market’s persistent extremely oversold condition my thoughts were strongly suggesting that the twelve – trading day range since the beginning of February was likely the initial stage of the construction of a defensible low. Undercutting the consolidation range puts that theory to rest (for now) but does not change the current extreme position the market is in nor the expectations of the near term future. Beyond that, acknowledgement that the historically disproportionately important January low, which withstood another challenge, there is little to add other than the eighth decline in nine weeks has left the consensus of technical indicators (which improved a little last week) profoundly negative, some indicators more oversold that at any time in the history of trading natural gas futures.

Have mentioned it every week for the last three and sure you are tired of hearing the over-sold condition of the market and that there will be a substantial short covering rally coming (just trying to figure out from where). Wanted to bring it into context by looking at the most recent CFTC data but they did not update data to last Tuesday in the weekly report on Friday– so the analysis is a little late but likely the same interpretation. Take a look at the charts below: The first the Weekly Continuation with Total Open Interest and Volume and the second is the CFTC report through the latest data.

The ellipses hi-light the trade November 6, 2022. Total OI was at 984,593 contracts and the Speculative shorts represented 180,931 contracts of the total. Obviously, the chart shows the enormous run that the speculative shorts have brought to the market, currently sitting at 250,915 contracts (growing 69,984 contracts). Total OI has grown to 1,168,247 contracts (growing 183,654 contracts). In the recent decline in prices the speculators are responsible for nearly 40% of the recent declines. It is little wonder that warning of the upcoming short covering rally (not sure from where) has been mentioned here.

Despite the rally on expiration (almost reminded me of several expiration’s last year) prices closed the week lower for the sixth consecutive week– clearly a bearish indicator for the week coming. Along with that expiration, March did not follow the gains rather, closing the week $.25 below the expiration of February.

Early indications have the week gaining open interest (even with expiration) with gains in volume week over week. The losses do come with an RSI reading that is in the extreme zone (chart below is after the Sunday opening).