Category: Weekly Detail

Contrary to the writings this summer, October tested the August lows ($7.532 – $7.550) and broke below as support could not hold that area. For only the second time in the last ten years, the August lows broke down in September. When there was insufficient sponsorship for near term gas to hold the well – defined support, October plunged to a low of $6.737, as trading for the week concluded . To a lesser degree, it took the rest of the maturity curve and strips followed the declines. Neither of the two previous violations of the August lows (in ’20 prompt gas traded an “outside” month reversal to the upside and, in the other -’15- prompt gas was in a downtrend already 18+ months old), appear to present an acceptable similarities for the remainder of ’22.

Serious, resistance has been clearly defined by multiple calendar month highs from May through September, all between +/- $9.40 and $10.028, but where is support sufficient to overcome the momentum built to the downside since the failed late August breakout? Since prompt gas first closed over the continuation 40 – week SMA in August ’20, the rising moving average has been tested multiple times recently at the July – Q3 low. Only during December ’21 has it been violated on a weekly closing basis for more than a single week. Currently the value of that rising moving average is $6.489. For several weeks there has been the exceptional separation from intermediate/long – term trend defining 40 – week SMA (the high weekly level was 55% above that Average). While it sometimes takes longer than we think to materialize, prices should trend back toward the mean mean is as close as it gets to a technical certainty. Currently the separation is 5.2%. It should be noted that before the July low was traded the week ending separation reached 2.6%. During that week prompt August traded +/- $.23 below the moving average, before prompt gas turned and rallied to a higher high.

Prices declined off of the “fake” rally on the rail strike and closed the week down. The “outside” week range with the close approximately equal to the previous week’s low is a significant technical negative. The coming week will be critical for October. Given the weekly reversal, weak close, the first close under the continuation 20 – week SMA since the week of the July Q3 low, the technical odds favor further testing of the last two weekly lows. Violation of that recently support would suggest an immediate test of the August lows $7.532 – $7.550 (the August low of October gas was $7.536).

Market internals continue to provide little support for any continuation of the uptrend…and not much more for extension of the decline from the August high. This week open interest declined as prompt gas rallied to close higher from Thursday to Thursday…a neutral indication at best. Open interest has remained in tight range all summer . Average daily volume was just about unchanged even though volatility increased– neutral.

Prices extended their decline on the return of trade after the weekend. As discussed, this period of the year is one on the most bearish periods for trade during the year. The declines last week sent price below the 50 day SMA for a close below that zone for the first time since mid-July . The zone between the 50 – day SMA, this last week’s low, and the August low ($7.532) is serious support for October and for the intermediate term uptrend that began following the July low.

With a consolidation pattern developing, the technical indicators typically fluctuates between neutral with a price positive bias and neutral with a price negative basis while a trading range is being constructed. Open interest was steady as the market fell to close lower (a slightly technical positive, but that was offset by increasing volume) . Volatility remains historically extreme with this week’s range $1.375 was greater than the 15 – week average ($1.300). Before the gas market is ready for another leg up daily and weekly ranges tend to compress as buyers and sellers approach a balance forming an equilibrium of a sort.

Spoke in the last Weekly that last week was going to be a struggle between the trend of well bid expiration’s and the weakness associated with the Labor Day holiday (one of the historically weakest periods for natural gas). While the expiration went off rather benignly, prices collapsed on Friday before the extended weekend.

As mentioned in the last few Wekly’s, the period bracketing Labor Day is one of, if not the most consistently price negative all year. Typically, prompt gas trades to a late August high and then declines to a post – holiday/mid – September low.

Spoke over the weekend about a technical formation that has the “potential” for issues with Nat gas. It has to deal with the developing inverted head and should pattern in the Daily chart. Not saying that this will happen but would be remiss in not bringing it to you attention. The chart above has the two shoulders and the inverted head highlighted.

Technical doctrine holds that the mathematical objective of the violation of the “neckline” of a fully formed head and shoulders construction is an extension approximately equal to the distance from the top of the head (in this case the bottom) to the neckline. Using that metric suggests a target of $14 (9.670 – 5.325 = 4.345 + 9.670 = 14.015).

There will likely be two Weekly reports this week as the market performed and interesting technical formation of late. There will not be a Weekly next week as I have my annual fishing trip to Canada late this week and internet service is sketchy at best.

First off lets review last week’s action–While on a trading basis September did fail at lower high ($9.677 v $9.752) on a daily ($9.336 v$9.322) a continuation basis prompt gas set new closing highs. There were new closing highs in the Winter ’22 – ’23 strip ($8.991 v $8.779). To this trader, these are warning signals for the Q4 and Q1 action.

First off– let me apologize for not providing a Weekly yesterday and this on will be brief as I am still trying to overcome a digestive issue that attacked on Sunday.

Consistent with the strength into expiration of almost every month for the last year and a half, expectations were that expiring August would be well – bid before going off the board. Just no one sent my an email that the trade during the past week trade through the June high. Yikes reminds me of the Feb expiration. Needless to say that the activity (primarily an out side month) created some historical technical issues that I will en devour to update on the importance later this week and into the fall.

After trading to a high of $8.417 last week, prices closed the week at $8.299 for a gain of $1.283 (close to close). Clearly extraordinary gains over the last two weeks and left both the prompt August and September well above the commonly watched moving averages.

Despite this week’s strength, the consensus of technical indicators, failed to confirm the recovery with across the board in a positive (supportive) agreement. Due to the continued weakness in market internals- Open interest continued to decline as the market rallied. This week the total fell another +/- 20,000 contracts to the lowest level of participation since early 2016 – Average daily volume declined an estimated 20,000 contracts during the past week. Volume is currently less than the 50 – day average of contracts that has traded each day of the recovery from the 07/05 low with the exception of one. On 07/12 an “outside” day reversal to the downside was traded with the highest volume of any day during July. With the trading days remaining in calendar July, volume to date is estimated at 4,502,359 contracts while calendar June’s final total of 8,407,189– its is looking like July calendar trading has suffered very large volume losses compared to its predecessor.

Prices continued the gains that commenced after July 4th, closing at a four week high. The run took prices over the 20 Week SMA (closing basis) after closing below it for the last three weeks. Over the last fifteen weeks (since early April), prompt gas has traded an average range of $1.334, during the week and only four of those weeks traded less than a dollar from low to high. Coincidentally, the average daily closing price for those seventy trading days is $7.366, the average weekly closing price $7.279. Hedging and speculation require levels of risk management and approaches impossible when the gas market trades nearly 20% of the average value of the contract each week. The inability to manage risk exposure causes participants to withdraw from the market, which further reduces open interest and liquidity. Perhaps volatility will diminish over the next couple of months as prompt gas constructs a series of higher lows and lower highs, developing the summer range discussed previously.

The market has been here before recently. Look at the chart above, and notice the five weeks in December ’21 as the declines were dramatic up to a point and then a “range” developed, creating the consolidation for the break out above in January ’22. This period also had a decline in volume (lower half of the chart) until prices broke out and the volume exploded. A similar picture can be drawn from the current market (though only four weeks) as price consolidated (range trade) only to develop the momentum to move higher. Similar to last December, prices may not “take off” from here but any type of retracement to test initial support at $6.80ish and beyond around $6.42-$6.50 (spot) should be respected.