Category: Weekly Detail

As expected, prices rallied into the expiration process, setting the week’s high only to give a chunk of the gains up as June took over as prompt. Was interesting for this observer to watch the Friday trade on a 5 minute chart as prices leaped up from $7.05 to $7.30 in a matter of 10 minutes . That action smells to this trader as the machines and the algorithms rocking the market (the same type of event happened last month during the $1.60 correction off of the highs). This type of activity can create serious risk issues for those of us the don’t have the machine based algorithms nor the quickness to respond to bid/offer spreads with volume. Not complaining, just wanting to make you better at understanding the potential risks in your trading.

Prompt June but again found support at the rising trend line and 20 – day SMA with value of the trend line being $6.785, the 20 – day SMA of June gas was 6.796…the low trade 6.805. Successive months have now held their 20 – day SMAs as the most recent series of higher lows has traded and provided low risk entry points.

Mentioned in the Daily last week that due to the “blow-off” formation that the gains from two weeks ago would be lost during the correction from the over bought condition. Prices did not quite make the week a technical “outside week reversal” but came close as they set a higher weekly high but not close below the previous week low at $6.247. While the collapse did not facilitate the defined technical term, the reversal after setting the high, was significant and invokes technical damage short term. This sets up an interesting battle– as discussed here for numerous months, price action during the month has been reasonably consistent over the last months as prices have weakened during the mid-month time period, only to find support and perform rallies into the expiration of the prompt contract. April has not provided that similar theme and has come into the expiration from a weakening bias. The trend for an extended period (nearly two years), has been for prices to rally into or during the expiration process (call it 5 days). There seems to be a struggle developing on the May expiration, as prices are weakening while the trend suggests the other direction. Not sure how the expiration plays out, but can express that the summer (Q2) rally has not achieved its goal regardless of the reversal.

The primary reason for that assessment is the open interest trail in the market internals– until a larger increase in participation (open interest positions) is in evidence the gas market is unlikely to trade a final high (September ’21 total open interest reached a high of 1,468,636 and final price high traded three weeks later. Open interest is currently 1,143,359 contracts- preliminary data from the CME, nearly the same as mid – December). As suggested a couple of weeks ago — this may be the end of a series of runs that may continue until June or July.

Spoke last week that the rally looked to be more of a solid run not necessarily headed to a blow off topping formation. I will correct that assessment after last week’s Holiday shortened trade. Historically, dollar plus rallies (the current case 16.5% over four trading days), are characteristic of a speculative “blowoff” phase. Within that context, beyond the February expiration high there is little or no definable conventional resistance distinguishable on the continuation chart and there wasn’t the last week of January either.

An increase of 100,000 contracts during late March and early April brought total open interest back to approximately the same level that existed at or shortly following the rallies in Jan, Feb and Mar. Those rallies were all followed by corrections (Weekly Chart above) expect the same albeit from a dramatically higher price level.

The week’s close at $6.278 was the highest since November ’08 . At that time prompt gas was declining from its July high of $13.694. Since 2008 May has settled higher than April in nine of fourteen years and three of the last four.

Volume and open interest increased along with price for the third straight week, during this period prompt gas has traded from $4.478 to $6.538. This week the average daily volume was an estimated 100,000 contracts higher than last week, which was 40,000 contracts higher than the week before. In the last three weeks, the total level of open interest increased more than 58,000 contracts. Volume and open interest moving in the same direction as price is a significant technical positive.

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.