Category: Weekly Detail

You will notice the chart directly above and remember it from two weeks ago. I wrote about it this way…”Take a look at the chart above– each of the blue highlighted circles represent an early winter low as the market was under the cacophony of bearish claims highlighting the status of winter. Notice the reversals off of the lows– each over 30%. In 2015, prices bottomed at $1.68 only to reverse and trade up to $2.49 (over 47% increase). In 2016, the price low was $2.546 and the reversal took prices up to $3.994 (57% increase). In 2017, declines stopped at $2.568 and reversed upward to $3.34 (30% increase).”

Now look at the chart above it — it represents the driving force behind the rallies with culminated between the end of December of those years through the end of January. Many of you know that the underlying premise of mine is the Q1- market trades to a low, Q2 – trades to a high, Q3- trades to a low and Q4 – trades to a high. At this point the market has conformed properly with this pattern with the highs last Oct and Nov, but I am not convinced that the Q4 high has been defined. I also have 2020 history showing me that the Q2 rally occurred over a historically short period of time (five weeks) and the Q3 low occurred at the end of June (technically Q2). This year has provided some odd behavior (variance from historical standards) for gas and adds fuel to my doubts about current actions. A primary reason for my doubt is the short interest in the contract. Looking at the top chart — notice what drove each of those rallies off of the lows was short covering at the start or during the rally and we currently have a large short interest (not excessive). Should the demand forecasts continue to support or drive the price action– we may see some speculative short interest covering.

Two weeks ago prices broke below the 20 Week SMA only to close above this key area which has held the market (closing basis) since the week of July 13th. Last week’s bounce was an indication that January had traded its low prior to expiration.  Successfully trading through those trend lines will be further confirmation of that low while also going a long way toward repairing the technical “damage” to the charts that occurred with the declines endured from the first week of November failure at the October high. Adding to this correction of damage was the first week of December “outside” week reversal. 

While the collapse has been averted for now, there remains significant resistance that January will have to address. On a continuation basis, if prompt gas trades to 2.760 it will have regained 38.6% (Fibonacci retracement analysis) of its decline.  January must trade to 2.803, just a penny or so above its June and July lows (2.778 – 2.785). January has settled lower than December in each of the last three years (December ’20 closed settlement at 2.896)

Hope the bears got to read last week’s article on early winters—Prices took to the declines and worked lower during last week. It was interesting that the test below 2.40 was followed by a reversal higher on increasing volume…and extension of the gain to a higher weekly close.  That reversal back through the 20 – week (chart above) with the highest weekly volume since week early August, is a strong indication that January has traded its low before expiration.  With that in mind, the enormous amount of technical damage in the charts…including a monthly reversal on the January chart, violation of the low of a rare inside month in November and more than a dollar decline from the failed first trading day of November test of the October high suggests that the January contract will by having a difficult time gaining back any of the recent losses.  

Support: $2.425,$2.373, $2.255-$2.176
Minor Support: $2.162
Major Resistance: $$2.74-$2.789, $2.98-$3.05,
Minor Resistance: $2.649, $2.798

Started the research going back to 2010 but really figured that few of us remember trading the commodity that far back (unfortunately I do). So I limited the study to the recent history and found the necessary data to properly warn you. This is not to make a prognostication of future events but rather a response to a few of you who have contacted me that the “winter is over” and seasonal trends complete. I find your comments proof that none of us has a clue where prices are going for they haven’t proved accurate in the past.

Take a look at the chart above– each of the blue highlighted circles represent an early winter low as the market was under the cacophony of bearish claims highlighting the status of winter. Notice the reversals off of the lows– each over 30%. In 2015, prices bottomed at $1.68 only to reverse and trade up to $2.49 (over 47% increase). In 2016, the price low was $2.546 and the reversal took prices up to $3.994 (57% increase). In 2017, declines stopped at $2.568 and reversed upward to $3.34 (30% increase). Not sure how much you folks want to risk but history has proven, it can be quite expensive for audacious calls based on “weather”. Should the lowest historical increase occur – prices would run up to over $3.00. Should the highest historical increase occur – prices would eclipse $3.70.

The breakdown that started the week before, gained momentum last week as prices closed just at or below the Q1 ’17 and Q1 ’18 lows. This key area around $2.55 will tell us the near term direction for prices. A further continuation of the declines, a daily close lower, will likely signal a coming test of the gap ($2.37) remaining from the premium associated with the November contract.

Discussed a couple of weeks ago the two bias’ that exist in the market and they both remain. in place. While the declines have been swift a sudden (collapses usually are– whereas bull markets are slow and continuous). The declines can continue all the to $2. and slightly below to maintain the higher low aspect of that previous analysis.

Prices consolidated last week, expanding the lower side of the recent range, but staying well below the highs of the previous weeks, which contain the expiration premium. The market seems to be waiting for the next catalyst as the weather forecasts have remained bearish (so I have been told every day by the bears) yet prices have not capitulated, so there has to be other influences on the traders.

Last week’s action provided some bullish divergences as the price closed the week higher on higher volume and slight gains in open interest which are supportive to the longer term trade. The CFTC report is not published until later today and will update appropriately.

How much more bearish can it get — weekly reversal — blows through support $3.00 and continues to decline. This is likely headed to the 200 day in the Dec chart ($2.853) and then beyond to the Sept high at $2.823.

Total volume last week was higher slightly than the previous week when December traded near $3.40 The previous week was the least volume of any week since mid – July (the third lowest weekly volume this year) when prompt gas was still in a range below $2.00. Higher highs on declining volume is a warning that has characterized numerous significant highs in the past.

Prices closed at the highs of the week after trying to close the gap remaining from the premium that was afforded the December contract. This creates the second gap remaining in the Daily charts from the expiration premium (see chart below – highlighted by the dotted red lines). December traded as low as 3.151, narrowing the gap to a dime, before the highest volume day of the week indicated sufficient interest that the new prompt closed higher for the day extending the rally through its September high (3.362) in the after market trade.

These areas will provide support to the market in any extended declines. A confirmed close below the December expiration gap will assure a test of what is now long term support from the key area from the November contract between $2.98-$3.05.

As discussed in the Daily and the Mid Week updates, closing that gap from ’19 was important and unexpected during the Nov tenure as prompt. Had a stronger indication that the gap would be traded above when the Dec contract takes over this coming Thursday (thereby gaping above the old gap), followed by the Dec prompt retracing and actually filling the gap. All of those expectations were thrown out as Nov closed gap on a Daily basis, but could not confirm the legitimacy of the strength buy closing the week above the gap. Instead, prices weakened and closed the week below the gap area (seen below).

Technical behavior interprets higher weekly closes and breakouts through well – defined resistance (held the market since 2019) are bullish indications that a market intends to continue higher. Unfortunately, the breakout to a new high was not supported in the immediate or differed contracts, November was the only contract of the next nine to record a weekly gain. A highlighted earlier, technical orthodoxy requires confirmation, perhaps it runs a little more during the three expiration, but I would expect December to continue to weaken as highlighted last week.