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NG Weekly: Narrow Balance Development, 4.231s-4.63s, As Two-Sided Trade Continues Around Developing High Volume Node, 4.517s.

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Includes: BOIL, DCNG, DGAZ, GAZB, KOLD, UGAZ, UNG, UNL
by: Sharedata Futures
Sharedata Futures
Research analyst, commodities, ETF investing
Summary

Buying interest from key demand cluster early week, price discovery higher to 4.63s into mid-week.

Selling interest there and continued rotational trade into week’s end.

This week’s auction saw narrowing balance trade around the developing high-volume node, 4.485s.

In this article, we examine the significant weekly order flow and market structure developments driving NG price action.

02-07 December 2018:

As noted in last week’s NG Weekly, our primary inference for this week’s auction was for continued development of balance following the recent aggressive buy-side imbalance phase. This probability path played out as narrowing balance developed this week around the high-volume node, 4.485s.

This week’s auction saw buying interest in Monday’s auction near prior key demand, driving price modestly higher into mid-week, achieving the stopping point high, 4.63s. Low volume selling interest emerged there at/near key supply in Wednesday’s auction halting the buy-side phase. Rotation lower ensued during Thursday’s auction, pausing at 4.268s.

A minor probe lower developed early in Friday’s auction, achieving a stopping point, 4.231s, as low volume buying interest halted the auction, before rotation higher ensued through Friday’s EIA inventory release (-63bcf v -64bcf expected). Price discovery higher developed to 4.569s ahead of Friday’s close, settling at 4.51s.

NG Weekly 07Dec18NinjaTrader

As expected, balance development continued around a developing high-volume node, 4.517s, following the recent aggressive buy-side phase. June 2014’s key supply thus far has held.

Looking ahead, balance development is now the near-term market phase. As balance develops, a high-volume node of consensus will form. As that forms, the market will then again near its next directional phase. The current high-volume node, 4.517s, consists of 7.6k contracts. The prior two high-volume nodes that resulted in directional activity were at 3.546s (13.1k contracts) and 3.242s (30.5k contracts). This fact implies further balance development should occur to build a consensus large enough to drive the next directional phase. From a structural perspective, the highest probability path remains buy-side within the context of near-term balance.

NinjaTrader

Due to the US holiday on Wednesday 05 December, this week’s CFTC data release is delayed until next week. It is worth noting that based on the Commitment of Traders report, Open Interest (NYSE:OI) decreased substantially this week (1.33 million contracts) as a deleveraging trend appears to have begun. Additionally, the Managed Money (NYSE:MM) net long position increased modestly (239k contracts) at/near twelve-year highs. MM short posture decreased modestly (-46k contracts), near eleven-year lows. The MM short posture trend remains to the downside as the Long: Short Ratio increased to 6.19 near a twelve-year high. This data provides evidence of herding within the MM participants. The market has traded aggressively through the key supply areas overhead (3.630s-3.760s/3.784s-3.904s) toward June 2014 supply. Based on the empirical data, it cannot be argued that this buy-side activity has been the result of short covering inventory adjustment. Quite literally, there are virtually no MM shorts in the market before or during this current buy-side imbalance. It is likely that recent hedge fund distress (redemption and forced liquidation for margin calls) in the equity and crude spaces may have created contagion effect in NG. While the market structure remains buy-side, it is important to note that the MM posture indicates buy-side herding in the MM participants. From a structural perspective, the intermediate term (3-6 month) buy-side bias is still likely to face headwinds at 2014 major structural resistance.

NG COT Weekly 30Nov18

The market structure, order flow, and leveraged capital posture provide the empirical evidence needed to observe where asymmetric opportunity resides.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.