NG Weekly: Sell-Side Breakdown Early Week, Price Discovery Lower To 2.55s

Summary

• Last week’s unsecured low, 2.73s, failed early week as expected.
• Price discovery lower developed into Thursday’s auction to 2.55s.
• This week’s auction saw a sell-side breakdown through last week’s unsecured low before price discovery to 2.55s developed.

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

As noted in last week’s NG Weekly, our primary inference for this week’s auction was for sell-side activity. This probability path played out as last week’s unsecured low, 2.73s, failed early week and sell-side continuation ensued. Price discovery lower developed through mid-week before achieving the stopping point low, 2.55s, in Thursday’s auction, closing the week at 2.60s.

03 - 08 February 2019:

This week’s auction saw last week’s unsecured low, 2.73s, fail in Monday’s trade as price discovery lower developed, achieving a stopping point, 2.65s, where buying interest emerged. A minor probe lower from there in Tuesday’s auction to 2.64s resulted in buy excess halting the auction, driving price higher to 2.71s through the remainder of Tuesday’s trade. Two-sided trade continued through Wednesday’s auction, 2.71s-2.65s, as buying interest emerged, 2.65s-2.66s, into Wednesday’s NY Close at key support.

Wednesday’s late buying failed early in Thursday’s auction as a sell-side breakdown through key support developed. Price discovery lower continued through the EIA release (-237 bcf v -245 bcf expected) before achieving the weekly stopping point low, 2.55s. Sellers in size trapped there amidst buying interest, halting the sell-side sequence into Thursday’s NY close. Rotation higher developed into Friday’s auction as balance developed, 2.55s-2.61s, ahead of Friday’s close, settling at 2.60s.

NinjaTrader

This week’s primary expectation of price discovery lower did develop, consistent with market structure. Price discovery lower ensued to 2.55s where another unsecured low developed into this week’s close. This structural development occurs within the context of continued sell-side price discovery below prior key structural support, 2.87s.

Looking ahead, the near-term bias (2-4 week) remains a sell-side bias, based on market structure and order flow. It is important to note that this week’s low (like last week) is unsecured. This week’s low developed at 2018’s key support, 2.55s. Focus into next week now shifts to the market response to key supply overhead, 2.65s-2.70s. Failure of the sell-side in this area opens the door to short covering inventory adjustment by sellers near the low. In the intermediate term (3-6 month) context, further price discovery lower into major key demand, 2.20s-1.50s, remains possible barring sell-side failure within supply overhead, 2.87s-3.72s.

NinjaTrader

Following the partial US government shutdown, the CFTC has resumed publishing the weekly COT report. The publishing resumes with late December’s data and will be lagging for the next two to three weeks (releases on Tuesdays and Fridays until current) as they catch up. Our data will update with their publishing schedule.

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

Analyst’s 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.

Comments

[Sharedata Futures]

@ponifan As always, thanks for reading and your input!

[ponifan]

It was interesting that this past week's draw had an impact on NG price. It had been 100% about the short-term weather situation.

Nevertheless, as winter ends, the weather should continue to be the main driver to the value of NG.