Category: Weekly Detail

Trade took prices through and close below first the short and then intermediate term trend lines (support). This move extinguished all but the long – term upside bias for prompt gas. Continue to expect wide trading ranges as the gas market attempts to define support. Prompt gas got way too far over its skis this spring and is making an extraordinarily volatile adjustment…retracing 50% of the rally from the June ’20 low in only sixteen trading days. While that decline/retracement extinguished the near term and intermediate term upside biases the long – term uptrend remains.

During the uptrend that first began following the June ’20 multi – year low a long series of higher highs and higher lows has been discussed here and was clearly observable. Short – term, intermediate – term and long – term trend has been definable with trend lines, by following moving averages and by seasonal and monthly lows. After flirting with violating the short – term uptrend in early May and early June, on 06/21 prompt gas decisively violated the trend line rising from the March – April lows and the 20 – day SMA. That decline and close ended the short – term uptrend. That decline and close ended the short – term uptrend. That same day prompt gas closed under the 50 – day SMA confirmed three days later. That violation was quickly followed by a close below the late April and May lows…the conventional support that comprised the last higher intermediate term low. Closes under the 50 – day and the May low ended the intermediate term uptrend.

Price extended the losses and collapsed below the major support between the April and May lows ($6.247-$6.426) and closing the week below the higher low established during those months. This extension occurred with lower volume (partially due to the holiday), but more important is the decline in open interest. The market is now at the lowest level of open interest since the collapse in Jan ’16 and the Q3 low established in Jul’16. Notice that both of those were lows as the market was struggling with declines and position by the hedging community. Similar to current conditions as traders are not sure how to deal with the one year effects from the war and the LNG situation. It is clear that the recent collapse was partially due to a re-assessment by the fundamental condition from LNG demand loosing 2 Bcf/day (displacing that gas into storage) and the destruction of technical support levels.

So is the bull run over –not sure as if you look at the last lower low, in the chart below, prices traded around the lows for three weeks before breaking out to the upside (2nd chart below).

On Wednesday June8th, dropped over a dollar in just one hour.  Not to be out done, on Tuesday of last week, July surpassed that unusual event by declining $1.588 (from $8.609 to $7.041) in an hour.Substantial declines, by the prompt contract in the couple of weeks (all from a similar resistance area) should tell us something about the demand for futures contracts on either side on $9. 

This past week total open interest fell 42,829 contracts (through Thursday) bringing the two – week total decline to 84,767…the lowest number of futures contracts outstanding since Labor Day 2016.  It has been discussed here on several occasions, during the rally of ’22 that the level of open interest has contributed mightily to price volatility…both to the upside and downside.  Given the continued lack of participation in hedging, either long or short, expect continued price volatility. 

Last week was quite something as a new Q2 high was traded on Wed, through the May high (prompt gas has now traded $6.128 or 173.3% above the December 30th – “Q1” low) and then through last week’s low. On Wednesday July dropped $1.119 (from 9.546 to 8.427) in just an hour. Yee Haw.

In past weeks the historical seasonal pattern of prompt gas between around the Memorial holiday (05/15 and 06/15) has been discussed. Over the years prompt gas has consistently traded a pre – Memorial Day high, fallen to a post – holiday/early June low and then rallied into mid – June. June before going off the board and July since has essentially followed the historical script with astounding and uncharacteristic volatility. The ten – years average of early June rallies is 16.65%. From Thursday’s (06/09) low July rallied 14.1%.

Traveling today, Sunday, and the internet is sporadic. Prices declined on Friday after the close so would expect additional weakness on Monday. Will give more of an update to the coming week tomorrow for publish on Tuesday.

Major Support:$$8.73, 8.283-$8.24, $8.12
Minor Support: $8.065, $7.69,$7.36,
Major Resistance: $9.447, $9.60

Historical Holiday weakness trend was right on cue last week. After a bid not far from Friday’s high when trading resumed prompt gas fell from $8.916 to $8.118 where support was generated from the rising 20 – day SMA (not commonly sighted here). July recovered from that test of support and traded all the way back to definable resistance just short of $9 (as discussed in the Daily last week), reversed lower and spent the remainder of the holiday shortened week churning between the two extremes, ending the week about in the middle.

The momentum divergences discussed here in previous weeks continued while market internals continued to deteriorate The momentum divergences discussed in previous weeks continues to exist and provide additional curiosity. For example, this week each day that price rallied to close higher, the volume declined –while it accelerated when price fell. With prices lower from Thursday to Thursday open interest (data lags by a day) increased nearly 19,000 contracts, suggesting larger positioning on the short side. When a market is in a healthy trend volume, open interest and price will move in the same direction (similar to the December and March lows), right now the opposite is prevalent. In summary for May–prompt gas ended May $.901 higher than on the last trading day of April while volume fell significantly. Open interest also declined during May (from 1,138,850 to 1,115,815). Rising prices – falling volume – falling open interest is a combination that is not likely to continue and underscore a problem within the market..

No surprising last week that June gas was well – bid into expiration and June was the fifteenth straight contract to enjoy increased buying during the last few days of its prompt life. What was surprising that the last support took prices through the early May high for June gas. The recent trends have had support tested after the start of trade month and last month was no exception as, June gave buyers a chance to buy weakness when it plunged from the aforementioned early calendar May high. As long as the tend and process of higher lows and higher highs (a primary characteristic of a longer term trend and discussed here for several months) continues it is likely that there will be a brief correction to the July prompt in the coming weeks. Whether it falls $2.566 (like prompt June gas) in less than three trading days, remains to be seen.

History tells us there is a consistent pattern that brackets Memorial Day Holiday. That pattern has, prompt gas setting a high between mid/late May and then declines to an early/mid – June low then rallies toward an early summer high. The average of the declines since ’00 is 11% – 12%. The 10 – year average of rallies from June lows is 16.65%. From the high traded last week at $9.447 to the low on May 27th ($8.285) represents a 12.3% decline well within the average. Not stating that the Holiday low has been established, but the current decline has met the average decline.

June closed with a new contract high weekly close at $8.083 it was also a new high weekly close on continuation basis and was above the April high. While the soon to expire prompt posted a weekly gain ($.420) being the third higher weekly close of the four Fridays during its tenure, the week experienced three straight lower daily closes on (Wednesday, Thursday, and Friday for the first time since early March.

While volatility remains extreme, this week the 15 – week ATR (average true range) calculation was $.986 (down from $1.107 on May 6 which was the highest since November ’06 (see Weekly chart below). Regardless of the volatility, June has made little sustainable upside progress over the last month. June closed at $7.958 on April 18th, at $8.043 on May 6th, $7.956 on 05/16 and Friday at $8.083.

From the previous week’s reversal, prices gaped lower at the open last week (though quickly filled) continued a decline that extended down to the lows $2.566 below previous last Friday’s reversal high, and testing support presented by the April low ($6.345 last higher low), and into a zone between the September and October ’21 highs ($6.280 – $6.466. From the December low ($3.536) to the May 6th high ($8.996) prompt gas has rallied $5.43 or 153.6%. The second largest in terms of price increase; the largest in terms of percentage increase in the history of natural gas trading (more history below).

Market internals continued to show divergence two weeks ago. This last week volume accelerated as the market fell (Monday and Tues), then declined as it recovered. Open interest declined for five straight days while price fell (from Thursday to Thursday losing nearly 31,000 contracts), bringing the total decline to more than 80,000 since mid – April. Lower level of open interest can create more volatility (less positions to be defended). A more significant technical issue is that neither volume nor open interest has confirmed the April OR May highs. Higher price highs without higher volume or open interest is a significant price negative divergence. The weekly RSI has formed the classic divergence as the higher Weekly high during the week of May 2nd (Friday the 6th) did not confirm with a higher high level.