Category: Weekly Detail

Following the previous week’s close of $4.132, when trading resumed on Sunday night the first trade was $3.826, creating a substantial gap in both the weekly and daily charts (discussed in the Daily last week). January recovered about $.06 during the day but found selling at the violated 200 – day SMA…the first violation of the 200 – day since April 6th, and then traded down to $3.630 with the highest volume since the reversal from the October 6th high. The prompt worked higher after Monday’s action with both volume and volatility (and open interest) diminishing. The high traded on Friday afternoon but still left January $.207 lower with a weekly continuation gap between $4.042 – $3.965. This action has left the the short term momentum indicators severely over-sold.

Since the October 6th high prompt gas has fallen $2.836 or 43.9%, while the summer ’22 strip has lost only $.117 from its close on October 6th, equaling 3%. It should be noted that the summer strip posted its its last high on 11/27, $4.334 and has fallen from that high to a low 18.8% from that high. Total open interest continues to fall as traders show little interest in either speculation nor hedging at this point. Will look at total open interest this week and if there is some interesting aspect to the declines — will update during the week.

While prices rallied into the December settlement that settlement was below November (the first time a prompt has settled lower than the prior month since April settled discount to March) suggested that the character of the uptrend had changed, Tuesday’s decisive violation of the conventional support surrounding 4.70, the 20 – week SMA for the first time since early Q2 confirmed those assessments. The average of the declines from the fall (winter) over the last 20 years is 37.9% – the declines from the Oct 6th high to the low last week was 37.5%.

While prompt gas lost $1.345 this last week (the largest one – week decline since late February ’14 ($1.526), prompt gas remained above the rising 40 – week SMA (currently 3.905), though looking at the declines in the after market on Friday, expect that level to be tested early this week. The last time that prompt gas approached the continuation 40 – week SMA was over a five-week period during March and April before beginning the rally that resulted in the October high and the summer and fall’s bullish bias. The time before that was just prior to January ’21 expiration when the soon to expire prompt traded to $2.238 and seven weeks later the February high printed at 3.316.

For the ninth consecutive expiration, the contract rallied during the process. I have no clue as to why, but in this case the rally in the expiring Dec contract price exceeded the Jan contract periodically during the”take-off”. December’s rally was the first monthly settlement value lower than the previous month since April settled below March– this action confirms the loss of upside momentum during calendar November and suggests a period of consolidation.

The contracts in the Q2 months and months more distantly deferred broke out to and closed at new highs. A week ago, the technical evidence indicated increasing sponsorship for the deferred gas. I mentioned last week that it was likely that the December would rally into expiration, however more restrained than the November contract. Failure to rally (continue the historical trend) would have been an indication that the character of the uptrend had changed. December’s rally confirms the bias remains in place.

The lows of the last two weeks and the October low, have been within a band of support between the November and December ’18 highs that prompt gas broke out through during September on the way to the October high (Q4 high to date). Multiple attempts to penetrate that well – defined support tends to confirm (especially after the downside momentum generated by last week’s decline) to that breakout level’s significance.

Eight straight contract months have rallied into expiration. The Friday before November went off the board it closed at $5.280. Three trading days later it settled at $6.202. I have no knowledge of why that trend of the last 8 months shouldn’t continue, but I doubt it will have the same action of the expiration of last month. Expect the low end of the range to be tested during the week, but also be prepared for the trend consistent rally.

After six weekly closes in a tight range prompt gas broke down through the 50 – day SMA which is the first close under the widely watched moving average since April 21st. The breakdown from the contracting consolidation pattern, suggests that the October 6th high may provide the the traditional Q4 high. Over the last twenty years prompt gas has declined by an average of 37.9%, 40% over the last ten years from its Q4 high. A year ago prompt gas declined 34% from an early November high to a late December low. Since the early October high the prompt price has fallen from a high of $6.466 to $4.725, a decline of $1.741 or 26.9%.

While the front end of the maturity curve was technically damaged and punished, with the winter strip falling $.705, the Q2 ’22 months closed an average of only $.082/ lower; the summer strip only $.068. This suggests the possibility of the the massive liquidation of bull spreads (liquidation of nearby contracts while buying to cover short deferred contracts).

The new week began with a gap lower through that ascending support (the original gap was $5.400 – $5.299 but was quickly narrowed to $5.400 – $5.370) followed by extension of the decline to a test of the continuation 50 day SMA (the first test of this commonly followed technical indicator since the August low(prompt gas has not closed under the 50 day SMA since April 21st). After trading to a new low for its tenure as prompt, the now soon to expire prompt recovered most of the week’s loss (including narrowing the week opening gap to 5.400 – 5.379 before fading to close $.13 lower. That established lower closes for the last two weeks for the first time since weeks ending 08/13 and 20 and the second time since 03/12 and 19, have substantially moderated the extreme short term overbought condition.

A week ago the technical indicators had returned to neutral for the first time since early summer with the violation of resistance presented by the October ’20 and February ’21 highs. This week’s trade weakened further but remains neutral as prompt gas appears to have recovered from quantifiable support including having traded a higher low. The last seven expiring monthly contracts have been well – bid into settlement (with three of the last four) trading the highs of their tenures as prompt on their last trading day (August traded its high two days before). Expect prompt gas to construct a series of lower highs and high lows during the coming weeks. Then an extension of the rally during late Q4 and/or Q1 is likely to occur. The last significant higher low was the September low at 4.735, this week’s trade to and recovery from a low of 4.825 is a successful test of support and creates that higher low. Together with last week’s lower high (5.964 v 6.466) prompt gas appears to have begun the construction of a “coil”. Unless or until important technical support (the September and to date October lows $4.735 –$4.825) is breached continue to expect higher prices.

I am well aware that many of you are frustrated with me continually talking about the over bought status of natural gas and the technical indicators that just confirm that status. When does the market moderate — none of us have a clue but I wanted to bring you some additional information supporting some consolidation in the price action. The natural gas prices have settled higher for six consecutive weeks during this run. Of those six weeks, prices started with strength (either Sunday night or Monday) four times and opened the week lower the other two time. Obviously, regardless of prices starting weak early in the week, the market finished higher by Friday.

Another element to the current price run is the range of prices as measured by the ATR (Average True Range) which measures the price range from high to low for the week or the day. In the Weekly chart below you can see the ATR readings for the last 15 weeks, noting it is at levels not seen since Oct ’18 through Jan ’19.

I am at lost to explain but the market seems to be telling us that it will be rallying into expiration for the seventh consecutive month. Last week we had a bullish reversal in the weekly close after the declines the previous week on a bearish weekly reversal after trading a higher high. There is a difference in the two reversals as the weekly declining reversal was on a higher volume and declining open interest, suggesting additional declines last week. Those declines were extended early last week, extending below the Q4 ’18 highs, then reversed after the storage report on Thursday. Last week’s reversal off of lows was on much lighter volume during the rally.

My comments last week alluded to what to expect later in the Q4 and continues to suggest that the rally has further to go, but not sure it will occur immediately.  If prompt gas intended to test the recent high in the near – term, there would have been more substantial volume during the recovery and rally last week.  It seems more likely that prompt gas constructs a continuation “coil” between those two extremes defined by the reversals ($5.65-$4.73) create short series of lower highs and higher lows, while the daily volatility (including the extremely overbought condition- weekly RSI), moderate.   

Prompt gas spiked to the highest price since February ’14 then fell 10.7% in less than three trading days. Some would consider that price action a reversal. For four straight weeks, prompt gas and the winter strip closed higher prompt gas and the coming winter strip closed higher even after the declines. For the first time since ’00 there was no definable price decline during the period bracketing Labor Day which, historically is one of the most consistent price negative periods all year.

Key elements of the declines / reversal was the declines in open interest (liquidation of over 30,000 contracts) with the highest weekly volume since last January. The highest volume day of the week was the reversal day (Wednesday) with over 778,000 contracts traded. That type of volume and reduction of open interest suggests that a correction was in process which was confirmed with trade later in the week.