Category: Weekly Detail

Price Action Closes Above Key Averages

Weekly Continuous

For several weeks the possibility/likelihood of a short covering rally similar to the December/early January rally has been discussed here. This past week’s trade is what a short covering rally looks like. The surprise was that open interest actually increased from Thursday through Thursday (remember that reporting of open interest statistics lags one day). Remember that when a contract is bought to “cover” one previously sold short open interest is reduced by one contract. Rather than falling, the total increased by 519 contracts and if the exchange’s estimate for Friday is anywhere accurate that total was reduced by 287 contracts…an addition of 232 contracts over six trading days when prompt gas gained $.325 on a daily closing basis. This would lead to the logical conclusion that at least an equal number of new contracts were bought to those bought to cover an existing short position…that combination of buying pushed the bid steadily higher, and is when all is said and done, a technical positive.

From its contract low on 04/15 $1.907, June gas has rallied .747 or 39%. The rally from mid – April through Friday’s close is the largest increase in a prompt June contract of the last ten years, but only slightly larger than the ’23 rally ($.654, 32.2%) that peaked at $2.685 on 05/19. As surprising as the extent of the rally from the May low may be, it is still not all that different from a year ago.

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Consolidation Begets Small Rally

Weekly Continuation

The consolidation pattern that permeated the market for the last two months (with slight advances) has developed a solid base for the summer. June reversed higher from support and ended the week strong (above the March/April highs, the continuation 20 – week SMA (for the first time since the January high and the historically important January low). The rally was extended toward resistance defined by the December low, 38.2% retracement of the decline from the January high to the March Q I low and the wide “expiration” gap left following February expiration. For three days June traded around that resistance, each day finding support at the upper boundary of the trading range that June defined between mid – March and the beginning of May. On Thursday the prompt reversed higher from that support and traded to the highest price since late January (with strong volume (the highest daily turnover since 02/21).

June settled back from a higher high on Friday, $2.344, to end the week at $2.252 (the highest weekly close since 01/26), still well short of closing the aforementioned “expiration” gap (a fraction of which remains open between $2.344 and $2.411) and 50% retracement of the Q I decline ($2.437). Given increasing volume and what appears to be relatively modest short covering there is a significant likelihood that June won’t turn back down until the resistance above is seriously challenged.

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Prices Remain Firm

Weekly Continuous

June traded through and closed above the April high ($2.092) making it the 15th time in 17 years that prompt gas has traded through the calendar April high during May. June also closed above declining trend line resistance, which will likely now serve as support as well as the March high and above the continuation 20 – week SMA for the first time since first two Fridays of 2024.

June’s rally was impressive, but it stopped short of narrowing the “expiration” gap left following February expiration and well short of well – defined conventional resistance presented by the December low closing above that gap would approximately equal the average of historical rallies from Q1 lows to Q2 highs. Volume was a little higher this week (a technically positive point, but just equaled the 20 – week average). Open interest was higher as prompt gas rallied, also a technical positive.

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Expect the Same Until It Doesn’t

Weekly Continuation

Friday’s contract expiration was remarkably reminiscent of the last days of the March and April contracts. May traded a new low for its tenure as prompt just as the two immediate predecessors, at $1.482, before settling at $1.614 (granted the low was traded in the early morning with little or no volume).

With May off the board at $1.614 the June (soon to be prompt) closed on Friday at $1.923, $.309 premium…nearly a dime (actually $.099) more that May was awarded over April and $.105 more than April over March. Deferred contracts have constructed their own trading ranges (discussed recently), each of which have ultimately been violated to the downside as the expiration of those contracts approached. April’s range was +/- $1.70 to $2.00 before it broke down to settlement day low of $1.481. The calendar March low was $.03/dt lower than the February low. May’s range during April’s turn as prompt was nearly the same as April’s had been except the upper limit was a little lower. Prompt May also broke down to a settlement day low ($1.482, holding .001 above the March low before recovering). Unless new prompt June falls $.442 during the last two trading days of April $1.482 likely, will be the April low, the first higher monthly low since October. Just to continue the analogy, a year ago the April low was $1.946, $.002 higher than the calendar March ’23 low. May ’23 traded that low on 04/14 rather than coincident with expiration and then settled higher at $2.117 (suggesting a departure from the established pattern).

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Range Events Create Limited Analysis Insight

Weekly Continuous

Previously, the low of May’s tenure was $1.686 ( inside the targeted zone of support, on its second day as prompt). This past week May finally took a couple of shots at closing the “expiration” gap left open on 03/27, neither quite made it. On the 16th May traded to $1.649, on the 17th to $1.660 which leaves a remnant of the gap between $1.647 and $1.649 still unfilled. Perhaps close is good enough natural gas does not like a vacuum, do not be surprised if May completes the task during its last week.

Contrary to that expectation is May’s reaction when it came close -the first time it ripped higher, trading to $1.802 in less than an hour. During the hour before May printed the week’s low 14,008 contracts traded, during the hour that low and reversal traded 50,239 (which makes me think that more than a few participants were paying attention to that gap and scrambling to get out of positions). Since May faded into the close setting up another test (total open interest fell for the first time in five days) it could only have been short covering, but $.153 in less than an hour serves as a good example of how quickly prices can disappear in a thin market.

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Working Hard For the Money

Weekly Continuation

The week before last week, gas traded a total range of $.200, further defining already well – defined support and resistance this last week it traded a range of $.212. This last week after opening a little lower May reversed, rallied through last week’s high only to fail at its 50 day SMA and a trend line declining from its late January and early March highs. A daily reversal on 04/10 (very similar to the reversal traded exactly a week earlier on 04/03), preceded the largest daily loss of May’s tenure and with the highest volume. Support near the upper limit of a zone between May’s February and March blocked a test of the target zone ($1.600 – $1.700, and the “expiration” gap left on 03/27 .

The entire range traded during April, ($.237) is less than half of the range and well within the extremes traded during March ($.528, $1.481 –$2.009). The range traded during February was $.657, in January $1.355. Range contraction typically occurs, at or near the end of a downtrend as a “sold out” market attempts to define a base. Less common is a high volume price spike lower, which is characteristic of “capitulation”, followed by reversal also with significant volume. Given the persistent, extraordinary level of open interest the less common resolution not completely out of the question, but recent trade has the earmarks of the construction of a classic base.

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Spring Trade Action Similar to 2020 and Last Year

Weekly Continuous

Current patterns are showing some consistency to trade last year and back in 2020, as the market is stuck in a consolidating trading pattern (though at different price levels) during the late winter early spring time period. Prompt gas has a history of finding some support in the spring. From a Q1 low (which traded on 03/26), the ten years average rally is about 50%. Last year from a low traded on 03/29 at $1.944, the successive prompts rallied prices 46%, but it took until late June to achieve that increase. Most of last spring the gas market traded in fits and starts but did trade higher monthly lows in April, in May and in June. Prompt gas rarely trades a lower low during calendar April than it did in calendar March (once since 2016).

Some of the technical indicators have marginally improved in both of the last two weeks but remain negative. Mathematically based momentum indicators (none of which confirmed the April expiration lower low) continue to suggest bullish momentum divergences. Divergences are not critical to a major shift in bias, but ignoring them leaves you at peril.

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No New Bias Definition

Weekly Continuation

April expiration was similar to March, but April’s spike lower was a little different. The trade to $1.481 was the low of April’s closing range whereas expiring March reversed higher, trading as high as $1.720 before fading to settle at $1.615, April appeared amply offered through the process. Settlement at $1.575 was $ .04/dt below March (significantly different from March settling $.875 below February) and was the lowest contract month settlement since July ’20 went off the board at $1.495.

April’s last minute spike lower had the earmarks of a classic capitulation low except that a volume spike was missing. With that critical difference noted, trade for the holiday shortened week had a striking similarity to the week March went off the board. With the premium awarded new prompt April the weekly continuation chart showed an “outside” week reversal higher (noted at the time also without the requisite volume ). Even so, April rallied to trade the calendar March high at $2.009 before retreating to close the “expiration” gap left between $1.720 and $1.782 on 03/12.

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Average Trade Range Narrows — Expiration Coming

Weekly Continuous

A second straight weak weekly close strengthens the technical presumption that prompt gas will be offered lower before April goes off the board. Readers may recall that expiring March traded the low of its life before reversing higher the day it went to settlement, February didn’t but did settle at a five day low.

It has been a long time since prompt gas traded a total range of $.122 during the week and even longer time since the average range for the last fifteen days was $.101. In late July last summer, the low ebb of the ATR did not quite reach the zone. The low calculation was $.117. The daily continuation chart shows that there was something of an immediate oversold rally but on balance prompt gas worked sideways to higher for a couple of months before kicking off on the Q4 ’23 rally. The low calculation on June 24, 2020 was $.0739, on April 28, 2021 $.0731. The periods that followed those calculations were strikingly similar, as price moved sideways to higher. The low volatility sideways to higher trade gave the lagging weekly calculation the time to catch up. In ’20 the weekly ATR fell to $.237 before a serious rally began. In ’21 to $.187 before a similar result. Currently the weekly calculation is $.396. Due to the ATR covering 15 weeks, another month will have to pass before the high range weeks that traded during January fall out of the calculation, but it will not take many weeks with a range of only $.122 for the weekly ATR to approach its historically bullish zone.

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March Has Action but Going Nowhere Slowly

Weekly Continuous

This is sure exciting-Price action found a decline at the start of the week to the area of support between $1.60 and $1.70. From there a bounce occurred and traded traded as high as $1.774. As that small bounce was occurring, volume was lower. By Friday. the prompt returned to retest support at between $1.643 and $1.651. All that action and nothing happened.

Volume and open interest increased as the prompt fell at the front of the week but the trend changed with the turnover diminishing on Friday. Perhaps this suggests that sellers below $1.650 might be more cautious. Notwithstanding that potential, given the weak ending close a contract low close for the April contract , the technical presumption is April will likely head lower.

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