Daily Call

Discussed on Friday the technical importance of the island top in the charts on both the weekly and daily charts. Will not talk again about it but to reiterate the importance of that gap from a trade perspective. I am well aware that many of you trade on fundamental data (weather forecasts) and that is fine but to watch three tries at a small gap fail — it should tell you something about the kind of fundamental information that will be required to break through that area.

Fascinating trade yesterday as prices capitulated after the release only to rebound. At first, it sure looked like prices were going to head back up to challenge the island gap discussed here all week — then the report release, prices fell down to my initial support area identified only to run back up and once again try to challenge the gap. They never got close to the gap but they did trade a higher high than before the release. Without the break through, prices once again melted down and ended the day just above the initial support identified. HUH— the island top has strong volume supporting the initial gap up, then strong volume the week of setting the high and now the market seems poised to trade a strong volume on the gap down week. This volume level is key to defining the island as a significant resistance zone. Today has a chance to have near term price implications. Should the market choose to rise and close that gap, closure of the gap will likely be accompanied with high volume, but obviously the gap will be gone and prices will be given the green light to extend. Should the market rally and fail at the gap — it too will likely have good volume and the weekly volume will confirm the island top as a significant obstacle for the next few weeks.

Prices were headed and challenge the Minor Resistance at $2.57, only to find a plethora of buyers that took the market up to $2.60 at the close of the old outcry period and then extended gains another $.07 by the end of the day in Globex trade. Got no clue what that run was about but it sure looked to me that some of the late shorts got spooked. Well, perhaps now we will get a chance to attack the Island Reversal gap mentioned earlier this week. Never know with a storage report , but that gap gives a seller a low risk (stop out on closure) opportunity to reload. We shall see.

The market did not even attempt to go back into the gap so the key I spoke about yesterday has been mitigated to a large part. Temps will be cold for the next couple of days but this event was baked in last week. Going to be lazy cause I have nothing else to say….prices sent an “island top” for the market to deal with. This is a technical event where all of the supportive issues driving the market were left in the dust as prices gapped lower and never came close to filling. A sign of exhaustion of the buying which was all based on short covering discussed over the last week. If you don’t get gaining open interest on higher volume you don’t have a recipe for higher prices longer term. Perhaps the bulls will try to trade into the island but they will be me will serious selling from a group of bears that just got there claws burned….

Big event yesterday and today will be key. Prices yesterday sent an “island top” for the market to deal with. This is a technical event where all of the supportive issues driving the market were left in the dust as prices gapped lower and never came close to filling. A sign of exhaustion of the buying which was all based on short covering discussed over the last week. If you don’t get gaining open interest on higher volume you don’t have a recipe for higher prices longer term. Perhaps the bulls will try to trade into the island but they will be me will serious selling from a group of bears that just got there claws burned. Discussed yesterday that this is now more of a bearish trade and prices should try to challenge major support.

With the open last night (a gap through minor support) expect low prices for Dec gas coming. Don’t follow the forecasts closely but I am to assume that temperatures are not as cold in the weeks out. Is the run over— the short covering run may be coming to a short term close but that does not mean prices can’t stay firm — the question becomes where do they find support. The price gains have been fueled by short covering, as discussed in the last week , so identifying support is highly risky. Patience early this week may be the optimum call from the long side — if short continue to add until support is defined.

The new mini-range was challenged yesterday on the bullish storage report that turned bearish. Still expect probes lower and perhaps close the gap from Monday at $2.718. Perhaps consolidation is the trade right now.

A new mini-range may be developing, though the storage report today may have an impact, between $2.781 and $2.82 that has held declines so far this week. Buying seemed to be limited as prices could not eclipse the previous day’s highs. Perhaps this is a consolidation of the recent gains, but I would expect a further test of support lower. Have little knowledge a fundamental reason for this but techs would suggest a test of strong support before the next leg higher. With the storage release, all cards are in the air, but the inventories will eclipse 3.7 TCF so we have plenty of gas in the ground unless the rest of winter looks like November. The gap remains from Monday in the Daily and Weekly charts so perhaps some incursion into the gap happens— or not.

Prices gapped above the resistance around $2.72 on the open Sunday night and never even tried to close the gap— guess we have run out of natural gas. What was interesting in the trade yesterday was prices immediately raced to the highs of the general session only to wander about. That is not the price action of additional short covering above resistance at $2.72, I would of expected prices to rally up to the $2.90 zone quickly and perhaps they will. From a tech perspective the market is over bought and should need to digest the gains for a longer term rally into the Q4 (but you never know about a short covering rally). This run is all short covering based upon near term weather forecasts is what I hear. Have no ability to judge the accuracy of statements.

Price rallied at the end of last Friday which leads me to believe something changed in forecasts. All I know is significant resistance areas got pierced in rather easy fashion up to the Sept high of $2.71. Early trade on Sunday has that level taken out but I want to see it on a close. They market is over-bought but in a short covering rally (warned you about that a week ago with a picture) technical levels of resistance are somewhat useless. If you are short — well you were warned- if you are long —remember that rallies based on short covering are not long for life. Continue to monitor open interest and if it starts to increase when prices increase — watch out.