Category: Weekly Detail

Some noteworthy events occurred last week with the expiration of the Sept contract. Expiring at 2.579 (highest settlement since last Nov), the 2020 Sept contract jolined three other years in the last twenty years to remain well bid into expiration. The historical trend is for weakness to carry the market during the Sept expiration due to its proximity to the Labor Day holiday. In each of those three prior, Sep contracts that were well bid were, in ’02 a reversal from the Q3 ’02 low confirmed an uptrend that did not culminate until a Feb ’03 spike above $11.00. The second year was in ’05 and hurricane drama events took prices on to a December spike to over $15.00. The third year was in August ’13 when a bounce off of the Q3 low did not end until the following February (very similar to ’02). Due to the similarities to historical events it may be prudent for traders and hedgers to understand that with natural gas price movements sometime rhymes.

Have been discussing the last couple of weeks, the need for extended bull markets to “feed the bull”. This event is confirmed with gaining open interest on higher volume. While prompt gas has closed higher for four consecutive weeks, volume has steadily declined and open interest has continued to decline over the period with short positions having to cover. These two events occurring will not support an ever increasing price level.

Suggested in the Daily last Friday, that against the technical instincts that the market showed, it may rally against the consolidation for prices, similar to the week prior and decline. Sure enough, prices started weaker, per the expectations, only to take off on a nice outside daily reversal pattern, finishing near the highs of the day.

With that said, it should be noted that the rally has taken prices near a zone, commencing at $2.50 up to $2.60 that has held the market consistently over the last few years. During last year’s run to the Q4 high there have been only four closes above it, all during the run in Nov ’19.

 Following the largest one week gain since the end of the run to the November ’18 Q4 high, the September contract extended the gains another .118/d, to close the week at the highest weekly close since 11/22/19. Expecting a building resistance just above $2.25 and the likelihood of correction back to substantial support, never occurred but buying commencing at the 40 – week SMA of September gas (followed by the hedge funds) ended the potential for lower offers.  The price rebound during the week extended into the close, with higher volume and gains in open interest and a close above the historically important January high is an indication that the September contract will continue to push further before expiration.  The August, September, October, November ’19, April and May ’20 highs of September gas all traded between 2.410 and 2.499 which could be expected as the destination for the recent gains.

While negative price action seems remote, prices will be testing the zone from $2.28-$2.25 and the area around $2.16 before expiration in all likelihood. Testing those areas are not as important as what happens to prices while testing that area.

Mentioned in last week’s blog, a key for near term bias change was a weekly close above the trend line off of the Nov ’19 highs and the May ’20 highs. The market opened above that trend line, then advanced through the resistance associated with the 40 Week SMA (had only closed above that during the Q4 rally 4 times and had not closed above since Feb ’19), and some of the shorts were forced to cover. The CFTC trader’s report noted that the shorts covered 45,839 positions through Tuesday of last week. I would submit that the majority of those occurred on Monday and Tuesday.

Prices then extended the gains, breaking the monthly trend line and formed the highest monthly price in seven months. These events left the market over extended to the upside, with the Weekly trading 3 standard deviations over the 20 Week SMA with the RSI momentum indicator racing to the extreme over bought level. This was achieved on high (but not exceptional) weekly volume and declining open interest (fueled by short covering). It should be stated, again on this website, that rallies based solely on short covering are not long for this world. We saw that last winter and again in May when the shorts stopped the action, prices retraced quickly. Due to this history, this analyst was startled that the bias remained positive for the rest of the week’s trade.

Prices traded back to 1.714 before the expiring August prompt rallying to nearly early July high (1.893 v 1.924) but then fell to expire at 1.854. From there the September contract immediately opened with a gap only to trade slightly above the August, in July, (1.928 v 1.924) failing and gave back the premium it was afforded, trading back into the common range that has held the market for recent months. It ended the outcry session nearly where the August had begun it (1.799 v 1.796). The reversal may indicate the difficulty that the September contract will face in breaking out.

It was interesting that the contract ended the outcry below the trend line on the Weekly, only to bounce before the close of the week, closed nearly on the trend line. Until the prompt gas closes the week above that trend line (from the Nov ’19 high and the May ’20 high), supported by higher volume and gaining open interest, it is likely that prices will remain in this range.

Further evidence occurred last week with gas that there may be a gradual bias shift headed in the near future. Prices opened the week lower and formed a higher low than June’s only to reverse and trade higher for four consecutive days. The rally briefly trade above the previous week’s high but closed the week just above the previous week for a classic outside week reversal. This action was accompanied with higher volume and gains in open interest for the week — both technically supportive indicators.

Momentum indicators are starting to provide a bullish “divergence” for gas as they never confirmed the June low (July expiration) and it is looking like the August expiration will unlikely follow the similar pattern as July’s expiration.

Can’t imagine a more neutral week with neither the testing of support nor resistance occurring during trade — boring. Natural gas has provided me many “huh” moments over trading in the last 25 years and I can’t shake the feeling that I am headed into another one. Quiet trade– volume decreased over the week (WoW), open interest decreased over the week– nobody is playing in the pit which scares the daylights out of me. Speculative trade lowered positions through the 14th by 5,786 contracts, while speculative length added 9,529 contracts. Perhaps I am just a cynic, but something is brewing in the gas market- just don’t know what nor when.

Major Support: $1.484-$1.44, $1.336
Minor Support: $1.527, $1.66, $1.722
Major Resistance: $ $1.864-$1.896
Minor Resistance:

Prices closed the Holiday shortened weak on minor strength and nearly on the 50 week SMA and the 10 week SMA. All in all, prices managed to firm after the technical destruction from the July expiration. We are back into the common range that the market has found such comfort for the last few months. Seasonal history tell us to expect more weakness in the coming weeks as the Q3 is notorious for setting a low (usually around the Labor Day period), but this year seasonal highs and lows have not favored historical norm and we can’t rule out the lows of July expiration being the Q3 lows. Tread cautiously in the coming weeks.

Major Support: $1.484-$1.44, $1.336
Minor Support: $1.527, $1.66
Major Resistance: $1.723, $1.864-$1.896
Minor Resistance:$1.759

I through out the comment on options expiration (Thursday Daily) that those that had sold the puts at long term support ($1.50) should not be comfortable. It turned out that they were forced to cover positions during the process. Prices continued further but the damage had been done.

Now we face the new prompt (August) and expect the premium afforded the Aug contract to be challenged. That being said, we discussed the Bollinger study recently and last week’s close was THREE standard deviations below the 20 week SMA. While the weekly RSI is not in extreme territory– it could be setting up for a popular bullish divergence (a counter trend indicator)– time will tell.

First off– We are in the midst of moving the office to another location which will require interruptions of internet access. I will try to get updates on the Daily out in a timely matter but there may be some issues with getting them in the email. Should you not get the email, turn to the website for the Daily. We experienced some slight problems last week but believe we had them rectified.

The next comment is “who cares about natgas”. If you didn’t get the last two Daily’s you didn’t miss much as the July contract reversed its historical trend of showing a brief rally in the middle of June only to break down and press the lows just below $1.60. Shockingly, that test failed and prices found the footing to rise on Thursday and Friday. Since the May high of July gas has traded a lower high for the sixth week consecutively, but still remains in the overall range discussed here at great length. With expiration coming up late this week, I am not convinced that July will be extending to far to the strong support surrounding $1.55-$1.51. If it could not garner the selling that after closing at $1.614, not sure, from a technical perspective, what will flip the minds of traders this week. Expect the expiration process to develop a range between $1.60 and $1.80 during the week and end in the vicinity of June’s expiration of $1.722.