Category: Weekly Detail

For only the third time in the last thirteen years prompt gas traded through the February high during calendar March but as of yet the the prompt has not closed above that high. The other two years that met that condition were ’13 and ’17. In both of those years successive prompts built on gains before recording May – Q2 highs.

Volume and open interest increased along with price this week (a technical positive). Average daily volume was an estimated 60,000 contracts higher than last week’s lowest levels in nearly a year. Open interest increased a slight 4,000 contracts (from Thursday through Thursday, open interest statistics always lag by one day), leaving the total just above the early February low (the lowest total since the fall of ’16) and still below the level at the December price low.

Following the tests of support on Monday and Tuesday April rallied to test the resistance beginning at $5 before fading into the weekly close. Despite reasonably serious challenges to both, neither the high nor the low of last week was violated. Accordingly, April traded an “inside” week, but with the close in the upper quadrant of this week’s range suggests that the resistance presented by multiple weekly highs will continue to be tested.

In addition to last week’s modest tightening of the range traded, the ongoing consolidation by prompt gas has been accompanied by a reduction in the average daily volume. Open interested increased, slightly, this week but remains below the December low. Volume, an estimated 1,250,000 contracts this week, was the lowest in nearly a year dating back to the week ending 04/02/21 (including weeks with only four trading days).

For last week April lost $.291 and the summer strip lost $.247, while volume and open interest both declined. It is constructive technically when price, volume and open interest move in the same direction (see below).

Total open interest declined another 12,562 contracts through 03/10 (open interest statistics lag one day) to just about exactly the same level as the week ending 02/11 which was the week that March gas traded its low before the big rally into expiration.

Remembering my high school Latin class (don’t ask me why) this word is used to define a long period of time which is the long period (nearly 2 years) that the gas market has been with a bullish bias. For the second time in two weeks prompt gas (the first being the last week of the March contract followed by the April), tested the intermediate – term defining 40 – week SMA at $4.42. A reversal from the support found on the April chart and the continuation moving average triggered a rally and a test of its February high (5.045 v 5.053, see chart below).

Total open interest, which declined by more than 94,000 contracts over seven trading sessions in early February to less than the total at the December 30th low (now considered the Q1 low for 2022), increased, but only modestly over the two weeks that followed. This last week the total number of contracts outstanding fell +/- 11,600 (though waiting for the final numbers from the CME) to 1,099,847, or about 10,000 contracts lower than at the end of December. The market volume was higher with total volume. Interesting to note that the total volume was higher but it was on a 4 day trade week, but average daily volume was just about unchanged with that of the last two weeks.

For the 12th consecutive month prices were well – bid through expiration, the majority of the time, during theses long run of price strength into the monthly expiration, the new prompt has been sold soon off after its predecessor has settled. Recall that March traded its contract high on 02/02 and then fell $1.696. February traded up to $4.077 on 12/28 and then fell to $3.536. January traded to $5.518 coincident with December expiration and then fell to $3.630 in six trading sessions. The last two of those when the calendar January and February traded lows, were higher lows. Granted, there are some international issues that may effect this recent trend but that may not break the trend but rather delay it.

The coming summer strip were largely unaffected by the expiration related volatility. At week’s end the summer was challenging resistance at previous weekly closing highs. It will be informative if the prompt April challenges it support levels in the coming week, providing the opportunity for the summer to weaken.

As the last twelve months has proven — expiration’s have proven well bid into the expiration. This month seems to continue that trend if you look at the trade in the light President’s Day trade with prices rallying over $.35. This last week’s strong gains, moved the consensus of technical indicators (which is heavily weighted to the prompt contract) improved but remained neutral. This analysis is primarily because of the failure to close greater than the continuation 20 – week SMA. The last time prompt gas closed higher was week ending November 26th.

Given March’s rally from trend line support ( short – term trend line drawn from its December and January lows), with diminishing volume (the number of contracts traded each day during the past week was less than the corresponding day last week) and failure at the continuation 20 – week SMA suggests that addition long term gains may be limited. Until the market demonstrates that the late tenure sponsorship that has characterized the long string of expiring contract months has dissipated…or disappeared, it should be assumed that it will continue. When something has happened twelve of thirteen times, my bets are going to expect it to continue.

March gas gapped lower at the beginning of last week, then tried to close the gap and failed, creating a resistance target of $4.468 – $4.487 for the contract to challenge before or during expiration (likely in its final days as prompt). Traders should wait for March to redefine near term support during the coming week as last week’s prices suggests it either has done or is in the process of doing.

Since peaking at 1,182,657 open interest in total contracts outstanding (up from 1,104,958 at the beginning of the year) coincident with March trading to $5.572 (the biggest one – day spike in volume in nearly a year (02/16/21). That total open interest has now declined more than 94,000 contracts in seven trading days to less than the total at the December 30th low.

The run identified and discussed (on this website) continued early last week and continued the trend of setting a high, for the March contract, early in it’s prompt tenure. Taking prices up over $5.57, the market ran out of short covering and remaining winter bullishness to melt down a $1.00 in two days. I wrote in the daily last week that this year’s pattern was strikingly similar to 2014 and warned any bulls to tread softly. Now I will mention to the bears that this is unlikely a direct collapse to $4.00 as there are several areas of support between last week’s close and $4.00.

Some house keeping issues first— above you will see the expiration of the Feb contract and it trading as high as $7.346. Unfortunately, the charting software that I currently utilize does not consider the expiration day in its Continuation patterns. Because of that the Weekly continuation chart below does not have that day in its profile — I am going to seek a remedy to this situation this coming week and see what can be done.

The expiration related price spike took February to 7.346…the highest price since October ’08, and it became the eleventh straight contract month to rally during the closing days of their tenure. February gas declined from the low volume spike to go off the board at 6.265, the highest since December ’08 gas settled at 6.888.

Last week’s close on some rebound strength (storage release weakness) gives hope to the bulls that the Feb contract will find its footing this coming week. Not believing in hope as a strategy, perhaps the market will resume the Thursday’s declines and test support from the Thursday low ($3.781) down to the $3.70 area before rebounding and and be well bid into into expiration for the 11th consecutive month. Following those expiration rallies none of the successor prompts continued to add substantially to the expiration related advances (October almost did) before retracing a chunk of the gain. January collapsed after December’s last day spike higher, February fell from 4.077 to 3.536 (a new continuation low and contract low daily close) after January was off the board before beginning to work higher. I can offer no explanation for this expiration phenomenon, only that history can present a trade strategy until it breaks trend. Prices may continue to rally from the Friday close, at which point the high from last week, around $4.39 (the false rally off of the long weekend), will present a solid target.

History provides that the last few days of trade in January and early February (March contract) have market a significant level (either high or low) for the tenure of March trade as prompt. From a long term perspective natural gas remains in a secular uptrend that began in June ’20 (discussed here since the fall ’20) defined by the trend line from that low found on the monthly continuation charts (below). Within that uptrend prompt gas has since early October been in an intermediate term down trend that has retraced 58.3% of the $5.034 rally from $1.432 to $6.466 (not quite a perfect Fibonacci 61.8% correction). As long as that secular uptrend remains in place– the appropriate strategy for trade is to work from the support levels defined from trade in the last year and selling the rallies at resistance.