Category: Weekly Detail

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. 

I did not think that the gap in the Daily Chart would be filled during November trade (pink line above), but like other events I am wrong. There was never a doubt that the gap would be filled (that’s because Dec was trading north of the gap at $3.34), but filling it with November has some implications. As mentioned in the Daily, the fact the gap was closed is important but prices did not close the day above that gap ($3.047), which leaves it unconfirmed. More importantly, when the market closes above (the Nov or Dec contract) the level around $3.00-$3.04 it will then become support (what was resistance becomes support) for a potential extended period of time. That said, should Nov remain above this area, expect Dec to at least test the zone during its tenure. The longer the zone remains support it may be the base for a period of weeks.

This rally has been based on some sort of fundamental driver and should that driver be mitigated then prices may trade around this area or below for a few sessions and possibly into and through expiration. If the driver remains and this area become support then its a new world for the near term and you have to look at higher prices for resistance because a floor has been established.

When trading opened last week on a run and didn’t look back, rejecting the the $.369 decline of the week before and closing above the gap from last November. The market traded to the highest level since before the Nov ’19 highs but did not contain the technical indications supporting additional gains, instead they evidence shows that the rally was on short covering (more below) when prices eclipsed the 50 day SMA. Open interest in the prompt contract declined over 100,000 contracts (over 30% of total) which is significant this far before the expiration process and the fund rolling period.

In previous discussions, there were four years when November commanded a large premium as October expired. Those four hears between ’04 and ’09 were afforded a premium between +/- $.62 and $1.47, this year’s was $.694. Each of these previous years there were some similarities to trade after the October expiration. 1) The expiration gap that resulted from the premium was reduced but the gap was not closed until the following year. The low, so far for Nov has not closed the gap from the Oct expiration; 2) the Q4/seasonal high had yet to be traded (the earliest was at the beginning of December’s tenure as prompt), this year’s has yet to be defined; and 3) November constructed a volatile trading range, The first two weeks have had above average true range.  Last week’s action left the Nov contract at a $.64 premium to October expiration where it started the month. The last week’s range continued the range expansion of the last four weeks ($.47+,$.525, $.769 and $.375) supporting the concept of entering a volatile trading range environment.