Category: Weekly Detail

Weekly Continuous

After trading another weekly high, failing at the band of resistance discussed last week, there have now been four straight weekly highs between $2.750 and $2.793, six between $2.740 and $2.839. There is clearly technical resistance in this zone and seldom as clearly defined as that. August went from premium to September in a hurry as it quickly made its way to support, also is just about as clearly defined. The lows of the last three weeks have been $2.492, $2.484 and $2.463. August went off the board exactly equal to the low two weeks ago and a little above the others ($2.492, $.111 under July and the first lower contract expiration since April settled at $1.991). discussed previously, the August contract has been described as historically amply offered. Given the way it went to expiration that again appeared to be the case. The low of its tenure as prompt printed shortly before trading in the contract ceased. Absent a high volume breakout through the resistance described above, September is likely to be subject to the same price negative Q3 seasonal pressures as its predecessor.

Long time readers know that I utilize and trust historical trends and almost always write about seasonal pressures during the summer. The weak close of August gas notwithstanding there really hasn’t been a lot of evidence of that seasonal pressure during the summer of ’23. From the 06/28 Q2 high to Thursday’s expiration July low prompt gas fell $.376 or 13% vs a ten year average decline of 27%. There is a long time left in the calendar quarter, but the historical fact is that September gas tends to trade the low for its tenure as prompt in early August. Over the last seven years (since 2016) that low has traded between the first and sixth trading days of the month five times (’17, ’18, ’19, ’20 and ’22), on the tenth trading day once (’16) and on the fourteenth once (’21). September contracts have settled from $.073 (’18) to $.725 (’20) higher than August in all but one of those years (-$ .008 in ’17). The takeaway from that is that while it has not always been so, in recent years seasonal pressure has been more likely to be in evidence in July and September.

Weekly Continuation

Did not send out a Weekly analysis on Sunday so I wanted to share comments from the weekend charts (even though they are current for this week). In last week’s items there was a discussion of a very significant zone of support between +/- $2.330 and $2.450. Analysis strongly suggested that August gas would be “drawn” into that zone before rallying. When trading resumed, August was offered below lthe previous week’s low and expecting that the triggers for additional selling within that zone would be hit. It did not happen. Following a low print of $2.484 August reversed course and ultimate traded through last week’s high (forming an “outside” week reversal higher) and did that with increasing volume. Perennially amply offered August (although it certainly wasn’t last year) closed higher for the first time in four weeks. Prompt August has redefined support with back to back weekly lows of $2.484 and $2.492 ( four of the last five weeks between $2.448 and $2.536; resistance with consecutive weekly highs of $2.793, $2.750 and $2.789–with four of the last five weeks between $2.740 and $2.83.

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.