Category: Weekly Detail

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

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. 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.