Category: Weekly Detail

Last week’s trade was “inside” the prior week’s range and the nearly identical open and close.  Prices continue above the 10, 20 week SMA, on a closing basis for the last two weeks. Resistance is clearly defined by the high of last week and prior week.  If that resistance is overcome expect a test of three weekly highs March traded between 10/19 and 11/02 (3.318, 3.320 and 3.316). Short of that break out event- expect the range trade to be re-in forced between $2.70-$3.00.

Starting to see some confirmation of the stronger prices as the total open interest and volume has gained over the last two weeks as prices have risen. Have discussed over the last two months about the bias change (bullish) that commenced after the multi-year low that posted at the end of June. Those discussions have centered around the series of higher high and higher lows. One element that has been lacking was the market confirming the bias change with the volume rising and open interest rising simultaneously. The volume two weeks ago was the highest since last March followed up with a strong volume last week. Both those weeks were met with gains in total open interest. Of greater interest is source of the gains– look at the following two charts– notice that some of the volume gains as prices rallied were associated with short covering by the speculative crowd as prices showed strength two weeks ago.

Three Friday’s ago, prompt February traded down to new lows for January.  That weakness brought an expectation of lower prices when trading resumed.  Rather than follow through to the downside prompt gas opened and left a small gap higher.  February hardly looked back before settlement .314 higher than that weak previous week’s close.  Last Friday, new prompt March didn’t give up all the expiration week gains but traded a daily reversal lower (that was discussed), dropping .146 from the day’s high and ended the week only a penny off the low.  The declines last week, with the selling, brought a similar expectation, March would be offered lower when trading reopened.  Instead, the first trading day of February began with another small gap higher (2.710 – 2.712). 

Needless to say, after last week’s weak close, expect prices to open higher on Monday, the question remains if the market has the support to close above the key resistance area around $3.00. Twice, last week, prices rallied above $3.00 only to find significant selling and resistance that sent prices down below $2.90 and into support zones. Will a third time be the charm?

Regardless of the expiration of the Feb contract, the price action could not wait to test the low end of the support that the Feb contract had confirmed during its term as prompt. The declines are still within the recent range and have had no impact on the long-term implications that the market has provided since last July. See the chart below which was first sent a couple of months ago.

The series of higher high and higher lows is the exact opposite of the declines experienced in 2019 and early 2020. That period was symptomatic of a series of lower lows and lower highs. As discussed, this market continues to be changing its long term bias from negative to more positive.

The weekly chart above shows the weekly reversal from the December low followed by a gap higher to begin ’21; the two weekly closes above the trend line declining from the October high and December high; and this week a close above the ten week SMA. While these actions could lead to a bullish bias to trade, still expect another test of support and the area around $2.60 has become a well defined area for initial support. From there the gap between $2.566 and $2.547 which still exists in the Daily and Weekly charts.

Last week’s close occurred with an increase in weekly volume but additional declines in open interest. The chart above shows the open interest declines occurred partially from the speculative interests leaving the market. It is interesting that the speculative length entering the market offset the losses from the shorts leaving the market. For the market to achieve significant gains the open interest will have to start gaining as well as maintaining the gains in volume.

The year’s trade commenced with a small gap between 2.547 and 2.626, and it appeared it would be filled when February retreated from the 20 Week SMA and narrowed the to 2.566. Surprisingly, price declines stop and closed not far off its low and remained open through the weekly close.  February regained the continuous 20 week SMA, and spent the remainder of the week testing the continuation 50 day SMA, each day trading ended higher than it began suggesting increasing sponsorship. 

The week’s gain were powered by significantly higher volume, highest in a months (see chart above). That said, the comparison should be viewed with a skeptical eye given the modest volume of the last two holiday shortened weeks.

That was a Holiday week as prices gaped open ($.26) lower only to spend the remaining days erasing that loss and ending the week $.015 higher. As expected all of this action occurred on below average daily and weekly volume.

January has had a strong history since ’92 of starting a month with a gap up or down. Sometimes (like last week) the gaps happen before during or after the holiday period. After what appeared to be a devastating gap lower to a three month low, prompt gas managed to trade a second straight reversal week and finish higher. It should also be recalled the historically importance (compared to other calendar months) is attached to the January extremes. For example, in 16 of 30 years the Q1 high has traded during January, on the other hand –14 times the January low has been the Q1 low. For some unknown reason, January trade has significant impact for prices during the year.

The price collapse last week suggests that prices will want to re-test the support gap from the Nov contract at $2.37. Closing near the lows of the week on lighter than average volume (Holiday related) does little to support the near term action. Support will likely be found from the high end of the gap ($2.377) down to the low end of the gap at $2.10. Mentioned last week that the market was susceptible to volatility and that can be either up or down as it heads into another expiration and Holiday week.

Support: $2.425,$2.373, $2.255-$2.176
Minor Support: $2.162
Major Resistance: $2.55, $2.74-$2.789, $2.98-$3.05,
Minor Resistance:

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