Well aren’t we all glad we didn’t hold long over the weekend. NG is back where we started Friday morning. We learned something though; the market must have “sustained” cold weather to go up from here. Even with TDDs above the average, my bet is that prices will continue to fail to get above $3 for Dec or $3.25 for Jan. For now anyway.
As you can see here we actually have less storage in the ground now compared to 2013 at the same point heading into winter of 2014. I’m using this to show what possibilities can occur, no matter how slim the chances of them occurring.
To take this a step further, we’d have to look at overall supply and demand, also HDD vs weather related demand. Something I don’t have time to do at this moment. Being that it is the more important factor, storage must be monitored every year.
What else do we know? Weather forecasts are showing some cold, but not life changing cold. LNG and exports to Mexico are just not enough to boost demand. The market is looking like it will be oversupplied forever. Canada has more gas they’d like to sell to the US if only there was a need for it. Expect prices to stay suppressed.
On to the chart. Being that I’m more at home talking about fundamentals, I’m not going to say much here. Prices gapped up and failed in a big way. This is a rather large red daily candle to start the week off. This tells me more of the same, prices are still under major pressure.
I cannot say with confidence I believe that prices are headed lower. If we look at the 2hr chart, it shows a hard fall. It feels as though we are range bound here. I am most interested in a short position to see if pricing can get back to $2.5 for Dec contract. I can’t say that I would take a position today, but get if I got in DGAZ now, I would stop out at $118 today. And the position would be absolutely no more than 10% of my funds.
All I have confidence in at this point is longer term, prices stay depressed. This could be good for an options trade or spread trade. I will put this on my list. Tomorrow I should switch to Jan contract on the chart. Good luck trading.
Update. I would trail the price of DGAZ and take profits, don’t let it fall all the way back to $118. $4 trail would be my preference for DGAZ.
This is the current forecast 6 hours from now. We see the lines move up under AK (Alaska) and the down across the midwest and sharply swoop down into the Northeastern US. This is the perfect pattern for a spike in NG demand. Since this is the forecast for 6 hours from now, it’s pretty much guaranteed to happen. I believe in 10 day forecast, beyond that it’s an educated guess, but still about as much a guess as truth.
This is the 120 hour or 5 days out, you can see the lines are flattening out and no more cold being slung down into the Northeastern US. So cold temps in high population areas will subside, people will not burn as much gas to stay warm and consumption that had skyrocketed will drop back to about average use.
I should confess I was looking at NG1 and thinking gas had a ways to go before reaching the 20EMA. Looking at Dec contract without the influence of NG1, the price has already crossed 20 EMA and touched the 50MA on the daily chart. Being that I’m a bit green to technicals, I will look into further the use of NG1, which shows Nov contract until expiration, then Dec. For now I’m going to stick with displaying each contract and not use NG1 for short term technicals.
Moving on… the 2hr chart is showing some strength. I’d say the market has another hour to wake up and really give us a direction. I believe overall the price of NG will continue down this week, but not at the same pace as yesterday. There will be some bumps along the way, as normally is the case. The NG market is still far over supplied, weather forecasts haven’t given a signal to get excited, and the trend is simply down right now. I remain with 3.5% of my funds in DGAZ with a stop at $105. I think this is a bit close, but I don’t want to lose that profit so $105 it shall remain.
So I was off a bit with the intersection of 20EMA and NG1 price falling.
I misjudged where NGZ19 would meed up with 20 EMA on the daily chart. This is great, there is roughly 7 more cents for Z19 to fall, potentially sending DGAZ up another $7-$8. I chose to reduce 50% of my position first thing this morning at $107, this leaves 3.5% still in $DGAZ.
This chart hasn’t been updated yet, but it will show further weakening in HDDs, which in turn is helping drive the price down. Basically that cold cluster over the Northeast US is going to hit us hard, this week and by next week we should be seeing more average weather. Weather is never average, but you catch my drift.
Weather is my main reason for holding short into the weekend, but this is my reason for confidence in a Sunday gap down. I probably should have explained this friday afternoon when this report came out. Nonetheless; I did mention on twitter I would be holding. Short positioning had decrease drastically with this report, showing there is plenty of new shorts to be added. Also…
The two hour chart seemed to indicate the market was looking for reasons to drop. Thursday’s EIA report was strong and on or better than most estimates, yet NG did not breakout and hold and up trend pattern.
So culmination of weather, short positioning and 2 hr, led me to have confidence in the short side. Today’s Daily chart shows we have resistance around $2.6 with 20 EMA. I’ll stick with this and place a stop at $105 on DGAZ for the day. I want to keep the gains I have so this stop is close, it could get taken. I’m good with that, the % gain this time around has been closer to 1% on my account so I’m happy to place a close stop.
Yesterday I finally capitalized on all the scrapes made with $UNG. Content with adding more than 1% to my account, I exited all positions. Today I’ve gone 3% in $DGAZ at $112.75 with 1% added around $107.65, up for sale $1 higher, I may go into tomorrow at 3% or 4% in DGAZ.
As for what NG will do the rest of the week. I’m only 3-4% in DGAZ because my strong paranoia of $3 gas. Looks like DGAZ shot past 108.65, back to 3% in. Anyway, WX should get the credit for this run or at least for getting it kicked off. Short positioning among market movers should get the credit for the big move. It has turned winter on us and looks to be in the mood to stick around at least another week. Not only that, but HDDs are going to spike because the cold is going to land well within the Northwest, creating what we want, major NG demand increases. Moving into winter, all other factors become pointless to point out. It is now all weather driven demand vs production increases. Being that short positioning has been so extreme (really high) and price extremes (so low), this does play a factor in boosting this swing. So why didn’t I stay long, hell, I don’t know. Further more I should not have gotten in DGAZ yet. So be it. 3% here we go. I’ve gotten my average down to about $111, we’ll go with that.
NG does appear to be on target for 200MA, that’s about all I’ve got. Other than the big shift in cold to hit high demand areas of the US, I’ll go with not much as changed. I fully expect to see some pullback here, maybe even this week. November contract expires today so tomorrow and thursday will be as unpredictable as ever.
Correction, DGAZ went up, I’m out again… Thanks for playing
First up, I’m not feeling the greatest, this always affects my ability to think.
Basically weather is still leaning bullish, Short positioning seems to be still in the mood to be setting records, and Pricing is back down around lows. Production got adjusted up yesterday by PointLogic. They do that every once and while. Basically gas production has been a little higher than what they were expecting. This increase in production is probably the most bearish factor and a key reason for prices failing so far this week. Not to mention, when prices continue to fail to go up during bullish weather forecasts, look out below. If weather is supportive of higher pricing and higher pricing doesn’t come… Weather can’t stay colder than average for long, eventually it will reverse and prices may suffer if they are only holding a range with bullish weather.
I have a couple of trend lines showing on this chart above, this could be tight support today, I’m not counting on it, but I am 27% in $UNG again. I will continue to layer in with each leg lower. Remember $UGAZ will slaughter you in winter with natural decay and roll decay. $UNG will sustain this much much much (3x) bettererer.
I drew a little different trend line pattern for Dec contract. I would be inclined to believe this one. A wedge pattern that I don’t really know what to expect from there. Weather might actually play a role, in either direction. If we continue to be cold for the next couple weeks and are projected to be cold from that point, maybe gas could break out upwardly. In an oversupplied market, cold has to work much harder than people understand. On the flip, if cold gives up and weather is average or warmer than average, gas could break down, rubbing on that lower BB. I’m still a believer in sub $2 gas and bankruptcies, and all that goes along with this… Including a huge swing in S/D and pricing if it comes to that. Oil is beginning to suffer, maybe we’ll get a repeat of 2014/15/16. Now I’m just rambling… I’ll add again if we reach the lower BB on Dec contract and I’ll reduce back to 20% if we get to that downward sloping trend line.