Category: Weekly Detail

The break down of the trend line (mentioned on Friday) was a clear signal that prices were headed lower. That is why some of these technical levels are so important– they signal break down’s or break out’s. From there the question remained would the break out area around $6.45 hold which it did momentarily before capitulating, opening the door for prices to collapse another $.20. It is clear that the historical trend of weaker prices into early December remains well in place. The consensus of technical indicators had made steady, incremental progress since late October, gave up most of that improvement and retreated to neutral with a price negative bias.

Market internals were mixed during the past week but not nearly as weak as one might be expect given January’s reversal lower, average daily volume was much less than during Thanksgiving week by an estimated 90,000 contacts. Volume is supposed to expand if a substantial price move is sustainable.

As mentioned in the earlier Daily and Weekly writings, the area around $6.45 was key and the action last week confirmed as a rally broke above and sent the soon to expire over $7.00 quickly. Due to the light holiday related trade and the fact that the virus has returned to my chest — I will keep today’s Weekly Comments short. This last week’s exceptional counter seasonal price strength managed to pull the remainder of the winter strip back to and just above its still rising 40 – week SMA. Mentioned “counter” because there is historical evidence that the period around the Thanksgiving holiday is weaker (usually after trading to a pre-holiday high). Perhaps this year will resemble the historical norms with prices weaker during this week’s trade.

The technical indicators…which is heavily weighted to prompt gas, moderated last week and showed improvement this last week. The volume traded during three- and one-half trading days was nearly as high as five trading days last week…average daily volume increasing an estimated 95,000 contracts as prompt gas rallied to and through moving average, conventional and trend line resistance. Open interest declined modestly, suggesting that short covering played only a minor role in the rally—or that new buying was sufficient to offset what was likely a more significant amount of buying to cover contracts previously sold short.

After a “somewhat” calm wee of trade the question that was mentioned in the Daily –Is gas constructing a base to resume the secular uptrend higher or is it consolidating after a substantial decline during the nine weeks between the August high and the October low, thereby allowing the extremely oversold conditions to moderate, before another “leg” lower. Both directional bias’ seem to have significant contingencies which means that violent whip saw action may occur.

For the market to advance after building this base, a violation of the intermediate downtrend line will suggest that the decline from the August high ($10.028 – $4.750, 52.6%) has likely concluded, but not necessarily that a serious rally will follow. Higher levels of resistance, not limited to the the November reversal high and the still rising 40 – week SMA, are formidable areas. Three of four higher weekly closes suggest that December is gaining the sponsorship for a successful test of the declining resistance. Violation of the trend line and a weekly close above $6.459 will suggest that prompt gas has traded the first higher close of a new intermediate term uptrend (as discussed in the Daily).

I have no clue what stimulated the market to the opening gap of that size (last Monday) but it took the prompt through the still rising 200 – day SMA. The run did not last long as December quickly fell to close the gap and continued lower. After back – to – back weekly gains, the first since the final run to the August highs, on Friday a failed recovery attempt, terminated ending up as a downside reversal from just above the previous week’s high to close the reversal lower. The week ending daily reversal left December back below $6 (where most of the trade during it’s tenure as prompt has been spent). Critical support for December is between there and its October and to date November lows ($5.345 –$5.614). Events like this week’s reversal following an opening gap and then the moving average cross along with other factors suggest that rallies in December gas will be enthusiastically sold.

The last time the continuation 10 – week (SMA) crossed through the 40 – week was during January AFTER the construction of the December ’21 low and remember moving averages are always “lagging” indicators. The 10 – week remained there for several weeks until prompt gas kicked off on the late winter/early spring rally.

December gas rallied on somewhat increased volume to close the continuation gap left on 10/17 and then fell to test support. The week ended with strength as prompt gas rallied to a higher high and closed above the previously filled gap, the declining 20 – day SMA and the June/July lows.

When trading was initiated, the declines from the previous week were extended another $.153. Extremely oversold, about to expire November reversed from a “sold out” condition, and rallied almost exactly a dollar (21%). November traded a $.755/dt range on its last trading day, then settled with one of the widest closing range in memory $4.948 – $5.438. After a brief failed attempt to build on the extraordinary premium awarded over expired November ($.689 vs $.004 a year ago and $.295 in ’20), new prompt December, which had traded as high as $6.281 fell to $5.547, before finding support and ending well off the low.

Over the last couple of week’s there has been discussions of the “technical damage” that occurred to the charts during the rapid declines in October. The violations of trend line, moving average and conventional support that occurred almost entirely without any intervening rallies. While this week’s reversal was a strong suggestion that the gas market was “sold out”, the market has a lot of work to do before any significant rally can be sustained. Further evidence of that can be found in the market’s inability to hold onto gains (selling the rallies concept). December closed $.579 lower than the high it traded on Tuesday with selling clearly evident at its 10 – day SMA from Tuesday until Friday, $.339 off its low. The most important factor for December will be whether it can consolidate within the range it traded during the past week. If it is unable to do that then look for a test of the low of November’s closing range ($4.948).

The previous Friday’s close left the prompt below its 40 – week and the observation was made that in response to the weak close was that the violation of an important trend line should considered a potential. Prices didn’t take long for the market to resolve that potential and the prompt gas gaped through the trend line leaving a weekly (and daily) continuation gap that the November contract never threatened to fill.

The expectation if the critical trend line failed to continue to limit the decline was a test of conventional support presented by the June/July lows at $5.33and likely during November’s tenure as prompt. That didn’t take long either to blast that support. An absence of buyers and abundance of sellers drove the prompt lower each day. On Thursday November traded through the last higher low of the long 2022 uptrend.

This week’s decline was the seventh straight lower weekly close since then prompt September failed to hold onto or extend the rally through $10. The most recent period that there were seven consecutive lower weekly closes was between mid – November ‘14 and mid – January ’15. After one recovery week prompt gas fell for three more weeks. Before that there were nine straight lower weekly closes during the late winter/spring of 2012. That decline culminated in the April ’12 multi – year low.

Since the August high prompt gas has fallen $3.723 (37%) as a reversion to the mean has again brought it from substantially above the 40 – week (55%) to this week’s close below it (Nov contract) for the first time since the first Friday of 2022.

Prices rallied from that rising support off of the support from the 200 day and 40 week SMA’s and extended that rally through the previous week’s high. An “outside” week (trading through both of the previous period’s extremes) reversal is often characteristic of an intermediate term low (or high), but November was unable to hold on to/build on the rally gains. Prompt gas finished the week lower for the sixth straight week since trading the late August multi – year high just above $10. The closes of the last three weeks have been progressive lower, but are within $.093 ($6.841 – $6.748)

The last time a series of weekly closes were as closely bunched was during the construction of the December low. From week ending 12/17 through 12/31 there were three weekly closes between $3.669 and $3.760. Those “tight” weekly closes were an indication that after thirteen weeks the intermediate term downtrend from the October – Q4 high was “sold out”– The jury is out regarding this technical event.

The expiring October rallied from $6.456 to $6.901 before going off the board at $6.868. This was the third highest expiration this year but $2.485 lower than September. The average settlement for ’22 is currently $6.783.

For more than a year and a half expiring contracts have rallied before going to settlement, discussed here nearly every month, October did so, but the substantial decline to an expiration day low (also the low for October’s tenure as prompt), before that rally suggests a departure from the long – standing pattern but not necessarily the trend.