Category: Weekly Detail

The lower low last week ($1.519) on the open of the trade on Sunday night was quickly replaced by subtle strength. The impacts from the virus may have short term expectations of demand destruction ( though not being a fundamental trader- I don’t care) are now being offset with serious implications of production issues from the declining crude price. Looking at the chart above – some folks supported the April contract into expiration which is contrary to the fundamental trade. It is likely that prices will decline to close the small differential from last weeks contract expiration (the lowest since Sept ’95) and the close of the May contract- from there the market will be fun to watch. Also, watch the nominations and flow data early in the month as any hedges from the winter are gone and if folks hedged they may not choose to show up with their gas in this price environment. The three month range remains the trade game.

I remain on the sideline for the fundamental arguments of whether prices are headed up due to oil price issues impact and the virus blues. All I can see in the technical data is that the price continues to have problems at major support and the fact prices are trending into 25 year lows suggests to me that things will change. Unfortunately for nat gas traders, those changes can be violent. Longer term, the weakness in the summer strip was met with strength in the winter strip — while speculative shorts declined. The market may be sending a strong signal for the upcoming summer.

Major Support: $1.611, $1.555, $1.481
Major Resistance: $1.99, $2.029, $2.08-$2.10, $2.34, $2.437, $2.48-$2.52,
Minor Resistance: $1.883,

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Natural Gas Managed Money Long (red) vs Managed Money Short (purple) positions

Additional short covering occurred last week but what was of interest to me, was the gains in the winter strip while the summer strip found just minimal support. The market is showing a slight change in long term bias with this action. Time will only tell, but it is beginning to look like the bears are becoming a little spooked and loosing impact.

The trade last week left serious implications for future prices as the close near or below the long held (10+ year lows) will have longer impacts both up and down. The weakness is related (so I hear) to the effects of the virus and with the additional declines in crude oil prices. That tells me that declines due to the illness, there is less gas is used to keep homeowners warm than buildings which, not occupied, still need heat (avoiding frozen pipes) and therefore demand goes down. Seriously, you fundamental guys are twisted. Not sure where this goes down to but it will continue until this irrational perspective is concluded.

All fundamental noise to me, as I look at the markets, is the interpretation of the virus and the oil war that has commenced. The price action does not blend with the potential of the producer cutting production in the upcoming weeks and the effects of the coming summer that will start occurring. Technically, there is no support down to lows from the mid to early 1990’s so good luck picking those bottoms.

Major Support: $1.611, $1.555
Major Resistance: $1.99, $2.029, $2.08-$2.10, $2.34, $2.437, $2.48-$2.52,
Minor Resistance: $1.883,

Commodity Futures Trading Commission

Natural Gas Managed Money Long (red) vs Managed Money Short (purple) positions

A serious reduction of the short position from the speculative crowd occurred from March 10th to the 17th and is reflective of the chart above. It should not be construed as the potential for a short covering rally being abated but rather the short speculative sector is reaching the conclusion that significant additional declines is now limited.

The two charts above are provided to show the damage to the bearish market last week. Natural gas has a history of announcing a change in directional trade with a weekly reversal, accompanied with large volume. That is what happened last week as prices traded a lower low than the previous week and tested the lows from previous years (mentioned in previous postings) at $1.61. From there prices reversed in a large way on Monday and Tuesday (importance of Monday and Tuesday below in CFTC analysis) and traded to a higher high than the previous week on extraordinary volume. Prices closed the week at a higher close than the previous week which confirms a bullish outside week reversal. This is teh second strong signal that prices are in the process of completing a bottom to the trade and long term technical support.

Major Support: $1.611
Major Resistance: $1.99, $2.029, $2.08-$2.10, $2.34, $2.437, $2.48-$2.52,
Minor Resistance: $1.883,

As explained last week –Prices have retraced precisely to support in the Monthly chart above. The average gain from Q1 lows to Q2 highs is nearly 40% over the last ten years. Last year’s run was well below the average, with just a paltry 8% gain. These 2nd quarter gains in price have occurred in various stages of fundamental supply and demand imbalance levels – highlighting the supply situation of this winter may provide a muted impact this year, though the short interest by the speculators may keep this year’s rally well within the historical averages. The potential break-out areas for any rally will be the area of failure last months and the lows from August ’19 which held support from August to January. The lows tested last week at many annual lows seems to confirm long term support.

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Natural Gas Managed Money Long (red) vs Managed Money Short (purple) positions

The chart above indicates the historical extreme short position and some of the short covering that has commenced and actions last week confirmed the volatility the short covering will provide. Mentioned above that after prices sold down to $1.61 they rebounded and rallied for the next two days. That rally reduced the speculative short position, nearly 50,000 contracts according to the CFTC report released last Friday showing positions as of Tuesday the 10th. That short covering took volume over 878,000 contracts on Monday and and additional 1,039,000 contracts on Tuesday as prices rallied up to $1.95. This represents a somewhat muted short covering rally as discussed in previous weeks– but make no mistake the karma of this market is changing and it only a matter of time until the bias cracks.

The market remains with a bearish bias. After failing two weeks ago at resistance at $2.029, price have drifted lower as both the speculative long and short traders have been reducing positions (see CFTC data below). Have discussed the history of Nat Gas trading to a low in Q1 of the year and in four of the last ten years the low has occurred in April (slightly beyond the calendar quarter). Currently, support is holding between $1.61 and $1.76 which represents the lows from ’96, ’97, ’98, ’99, ’01, ’15 and ’16. Needless to say, this is a very strong level of support.

Prices have retraced to support in the Monthly chart above. As discussed in the Weekly above, how long this support holds (and from where) is the key for the upcoming annual second quarter run for prices. The average gain from Q1 lows to Q2 highs is nearly 40% over the last ten years. Last year’s run was well below the average, with just a paltry 8% gain. These 2nd quarter gains in price have occurred in various stages of fundamental supply and demand imbalance levels – highlighting the supply situation of this winter may provide a muted impact this year, though the short interest by the speculators may keep this year’s rally well within the historical averages. The potential break-out areas for any rally will be the area of failure last months and the lows from August ’19 which held support from August to January. Alternatively, per the Weekly above, declines will start to hit major support areas from many years.

Major Support: $1.753, $1.611
Minor Support: $1.705
Major Resistance: $1.983, $1.994, $2.029, $2.086
Minor Resistance: $2.124

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Natural Gas Managed Money Long (red) vs Managed Money Short (purple) positions

The chart above indicates the historical extreme short position of the speculative component to trade. History warns the traders that such extremes will not last long, though don’t indicate an immediate reversal. Over the last two weeks the short position has been reduced and the effect of the short covering was offset by the Managed Money Long position selling into the short buying. As long as this behavior continues, the expected short covering rally may be more muted than expected. Currently, the market remains under a bearish bias meaning that the short covering rallies may continue to be slow and inconsistent.

Weekly Continuous

Taking a look at the longer term trends of the Natural Gas contract the market remains with a distinctive negative bias.  This is consistent with market history as Nat Gas trades to weakness during Q1 of the calendar year.  In the last 10 years, the market has traded to the low prior to the expiration of the Feb contract once. In four of the last ten the low was postponed until April (slightly beyond the end of the quarter). The other five traded to the low after the Feb contract expiration and in the last four years the low was establish between 02/15 and 03/04. 

Not crazy

Monthly Continuous

Prices have started to gain limited support in the Monthly chart above. How long this support holds is the key for the upcoming annual second quarter run for prices. The average gain from Q1 lows to Q2 highs is nearly 40% over the last ten years. Last year’s run was well below the average, with just a paltry 8% gain. These gains in price have occurred in all stages of fundamental supply and demand imbalance levels – highlighting the supply situation of this winter may not have a muted impact this year. The key areas of resistance to the seasonal run will be the lows from August ’19 which held support from August to January when the support was broken. Should the run be delayed and weakness resumes – the lows from this month down to the multi-year low from March ’16.

Commodity Futures Trading Commission

Natural Gas Managed Money Long (red) vs Managed Money Short (purple) positions

The chart above indicates the historical extreme short position of the speculative component to trade. History warns the traders that such extremes will not last long, though don’t indicate an immediate reversal. This information should be put into the perspective of what is likely to happen at some point in time (short covering rally). How far that rally takes prices is subject to where it starts and under what circumstances. Currently, the market remains under a bearish bias meaning that the short covering rallies may be slow and inconsistent.