Category: Weekly Detail

Weekly Continuous

Technical analysis holds that once price has broken through the upper boundary of a well – defined range of significant length and done so with internals confirmation of the break, the technical expectation is that the prompt will return to test the breakout level. If the breakout is valid volume during the retracement will diminish and open interest will fall–not necessarily back to the prior low (the total number of contracts outstanding on 09/27 with price at $2.764 was the lowest since 01/30). Support bracketing the old range boundary will limit further decline and prompt gas will trade a higher low and begin to recover for a retest of immediately preceding high. Assuming that price action confirms the breakout level the last low and the higher low will provide anchor points for a new short – intermediate term uptrend. In the current case the upper boundary of the trading range was defined by the March high and then the August and September highs, all between$2.997 and $3.027.

Discussed a comparison to a similar range constructed between Q4 ’20 and Q2 ’21 . Once that construction was resolved to the upside prompt gas did not exactly conform to the expectation of testing the breakout. Rather, trade went very quiet for over two weeks then prompt gas tested support and provide an anchor point for a rising trend line that held over the next four months.

This past week, November started out lower, but rather than retreating enough to at least close the remainder of the “expiration gap” left last Thursday prices reversed from a low of $2.820 and posted a strong gain that was reminiscent of the rally to the August high (from $2.457 then prompt September rallied to $3.018 in five trading days) only to fail. This time the resistance that began to be defined by the March high ($3.027) and was further defined by highs during August and September ($3.018 and $2.997) failed to stem the surge of enthusiasm to buy November gas. By the time trading ended for the first week of October prompt gas added $.409 to last week’s close, putting some distance above last week’s first close over the 40 – week SMA since the peak of the December rally (Chart above). Friday’s extension of the rally also left November above its 40 – week and the continuation 50 – day SMA above the 200 – day for the first time since last November. Cannot define this as anything but positive technical events.

Another of the things that changed this week was that increases in volume and open interest accompanied the rally.You may recall that the lack of coordination between price and increases in the number of contracts outstanding and the number changing hands has been repeatedly discussed in the past (as recently as last week). Agreement of price change and market internals is critical for a sustainable trend. A week ago, their divergence was cited as the reason that the consensus of technical indicators failed to reach positive for the first time in many months. That flaw was cured this week. Higher prices (breakout over $3.02) with higher volume and expanding open interest matches the definition of a technical breakout.

Weekly Continuous

One of the most significant changes that the market provided was that October was bid into expiration and it has been months since we have seen that. After closing lower on Monday the expiring prompt reversed higher, on with pretty decent volume, and went off the board at $2.764, which was $.19/dt higher than September and the highest monthly settlement since February at $3.109. Settlement was notably still below the resistance defined by the June/July highs (the pre settlement high was $2.781), but premiums afforded November quickly changed that.

I spoke, recently, about the premium awarded November had fallen from a historically generous $.502 on 08/15 to $.242. When October went off the board that premium had been further reduced to $.135 ($2.764 v $2.899) which is more in line with the traditional norm but still more than enough to leave the expected “expiration gap” ($2.781 – $2.868) . Continuation resistance ( March and August highs $3.018 – $3.027) proved too much to overcome and now the September high ($2.997) has been added to the formidable resistance zone. The gains left the calendar September close $.165/dt better than the August close and the highest calendar month close since December and Q4 ’22 ended at $4.430.

Weekly Continuous

Prompt Oct remained in the same range October gas opened a little lower ($2.624 v $2.644) and closed a little lower ($2.637, minus $.007). In between there were a couple of tests of support (Monday’s low was $2.600, the value of the trend line rising from the April/May/June lows was $2.598 and another failed test of resistance. October traded an “outside” day reversal after the first test of the rising trend line with increased volume then followed through to the upside, trading a new high for its tenure as prompt ($2.872 v $2.865 on 08/31). The now soon to expire prompt managed to post a new high daily close then that was all she wrote as October gave up the two day gain falling to a new low for the week $2.595 before Friday’s recovery to close at $2.637, a little more than a penny below the continuation 50 – day SMA.

November gave up more (-$.053) as did December (- $.048) and the winter ’23 – ’24 strip (- $.041…a new low close). November has defined its own trading range since late March…+/-$2.825 – $3.300 but this week’s lowest close in 2+ years suggests that the lower boundary of that range nearly corresponds to the upper boundary of the continuation range, is likely to be in for a severe test. Have discussed the possibility/likelihood of November being taken into the extended continuation range and continues to warrant a serious mention. A close below $2.825 increases that likelihood to a probability. November is still awarded $.242/dt premium over October but since its peak on 08/15 that premium has been reduced by half ($.239 v $.502).

Weekly Continuation

When the week started — prices gapped lower and never came close to closing the gap during the holiday week. Discussed the historical tendencies of price action around the holiday with the declines consistent. In some years the decline is severe, some modest, the average of the last ten is about 10%. After closing at $2.765, gap-piing lower on Monday/Tuesday when trading resumed. On Thursday, after trading to the week’s low of $2.500 the prompt reversed higher from support and registered a decline of 12.7% from the 08/31 high. Given that October continued to follow the recent trend on the technical script the guidance is that the trading range will likely continue through at least the remainder of October’s tenure.

The gap left on 09/05 remains open between $2.708 and $2.735, together with a trend line drawn from the August and pre – Labor Day highs will present formidable resistance just below the aforementioned June and July highs. Expect October to close that gap and test the trend line tested over the next couple of weeks. At least as often as not the post Labor Day low turns out to be the low for calendar September and October settles premium to its immediate predecessor (about 75% of the time).

Weekly Continuous

Prices reversed from a new low for September’s tenure and the soon to expire prompt had a gap higher, finding similar selling at similar levels tested earlier in the month. Before September expiration (about exactly midway between the July and August settlement values) the expiring prompt closed the gap and ended with a last two day gain. New prompt October (carrying a $.121/dt premium when September settled at $2.556) the new contract month immediately built on that premium closing on the first day of its tenure at $2.806…right in the middle of the zone of resistance between the June and July highs. October tried twice more to close above that zone (trading to highs of $2.865 and $2.860) but both times ended those trading sessions lower.

The new prompt gas is following the historical technical script fairly well. As discussed prices around Labor Day have a period of weakness on either side of the holiday. The prompt gas tends to rally to a Labor Day high before weakening immediately before or immediately following the holiday period. Most often that weakness leads to a mid – September low. The average of the declines over the last ten years is about 10%.

Weekly Continuous

It certainly appeared that tendency was at work when September rallied to close higher for five straight days from a low of $2.457 on 08/02 up to test the March high, but there has been a different tendency during ’23, to which there has been little discussion here. The only expiring monthly contract this year that has had a semblance of a rally into expiration (a trend contrary to the trend of 2021 and 2022) was July and it lost about a quarter on its final trading day. After printing the June Q2 high on 06/28 expiring July traded an “outside” day reversal to off the board at $2.603. The others either traded the low of their tenure during the last three days before expiration (January, February, March, April, and August) or fell hard from a lower high (May $2.385 to $2.101, June $2.685 – $2.143). The last week there was too much attention to the 08/09 high volume breakout through the June/July highs. Still, despite a new low daily close ($2.486, the lowest daily continuation close since $2.485 on 06/20), trading through all those weekly lows (five between $2.457 and $2.536) and briefly through the 20 – week SMA (currently $2.471) September managed to recover enough to hold the fledgling up trend defining moving average and the trend line rising from the April – May – June lows on a daily and weekly closing basis.

Over the five Fridays of prompt September’s tenure there have been four lower weekly closes. September’s net loss since Friday 07/28 is $.167/dt September giving up its premium plus $.026 at the low daily close of its tenure. It’s not like they took September and shot it. The more interesting elements are that over those same four of five losing weeks the current one – year strip is only $.008 lower. If September is $.167 lower and the strip is only $.008 lower there must be some under the radar allowing strength to occur somewhere. As it turns out, the average of November ’23 – March ’24 is $.037 higher over the same period. Seems to me that is supporting evidence for the thesis that sponsorship for deferred and distant deferred contract months is slowly gathering. For now, there is no doubt that the trading range that confined successive prompts for all of Q2 (perhaps setting up a similar range for Q3), will continue to be the primary consideration (meaning the appropriate strategy for traders to buy weakness – sell strength). Expectations are for the October to give up whatever premium is awarded when September trades its last, but it seems reasonable to point out that every time that prompt gas has traded into the mid $2.40s since the middle of June (prompt in waiting October into the mid $2.50s) the zone on either side of $2.80 has been tested.

Weekly Continuous

After trading just briefly back above the June high ($2.839, the previous week’s high was $2.863) September gas reversed lower, again failing to close above the zone of resistance between the June and July highs with an increase in open interest. That failure brought a decline further than anticipated but with a substantial decrease in volume. The target suggested last week was $2.60ish but that zone of defined support did not limit September’s fall as the prompt traded to a low of $2.524 before recovering to close at $2.551. Notably, the close was well above the cluster of weekly lows that traded between the end of June and the beginning of August (+/- $2.45 –$2.49) but also below last week’s low. A lower close below the previous week’s low infers additional weakness coming.

Despite modest price erosion of near term gas over the last two weeks, September closed $.026 lower than two weeks ago, but the strips are higher with winter $.136 over the last ten trading days, one – year $.092 higher. Perhaps that’s how the Q3 seasonal pressure plays out this year. The strips are much closer to earlier highs. Prompt gas traded that Q2 high on 06/28, the high daily close of the winter ’23 – ’24 was $3.613, Friday’s close was $3.612. The high daily close of the continuation one – year during the closing days of June was $3.363, Friday’s close $3.307. Maybe my analysis is way off base but seems to me those differences suggest that sponsorship is building for deferred/distant deferred contract months.

Weekly Continuation

The market has prompt gas construct and remain confined within a tight trading range about a third as wide as the range constructed between the range traded during calendar March for a while. The expectations were that prompt September would remain within that range for the duration of its tenure. Then there were four straight weekly lows between$2.457 and $2.492 (and others in the neighborhood), and the tendency of September gas to trade the low of its tenure in early August, fed the bias is that prompt gas is winding up for a run later into the quarter. Well I did not see was the likelihood of a short covering event the likes of which I can’t recently recall.

Open interest (the total of contracts open in the market) has been falling since a peak of 1,389,864 on June 6th (4 days after the June low at $2.136). As written here many times, when open interest falls while price increases the presumption is that participants buying contracts to offset those previously sold short is a significant contributor to an increasing bid. Since that June low prompt gas had traded as high as $2.839 (the June Q2 high) as the liquidation of open interest remained a more or less orderly process while the weekly closing trading range between +/- $2.47 and $2.80 was constructed. That ended this past week.

Weekly Continuous

Last Week’s low broke slightly lower than expiration week, as September did trade a lower low ($2.457 vs $2.463 previous week. That extends the seasonal Q3 decline to 13.5% from the June Q2 high ( less than half of the ten year average for the decline) and goes into the books as a violation of the July low for the fourth straight year. The absence of any follow through after trading a lower low says something about the support that we have talked about for the last several weeks. Prompt gas hasn’t traded an “outside” August (trade through both the July low and high) since 2010 but back then it use to do it on a regular basis (’10, ’09, ’07, ’02 and ’01). Given the “recent” history trading through $2.793 (the July high) seems like a low probability event.

For the fourth straight week support above $2.450 limited any further decline. The last lower low was $2.448 on June 21st. The prompt did start out a little stronger (trading to a high of 2.693) after settling the previous week at $2.638 but quickly failed. For eight straight trading days prompt gas failed within the range of the last high volume day (July 20th) when a few more than 500,000 contracts traded. The high that day was $2.789. Trading highs within the range of a high volume day is characteristic of the continuing consolidation and construction of a trading range. The zone between the July high and the June high, $2.839, forms the upper boundary the recent range.