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NG Weekly: Break Of Key Support To 2.48s Near 2-Year Lows

by: Sharedata Futures
Sharedata Futures
Research analyst, commodities, ETF investing

Sell-side breakdown early week through key support.

Price discovery lower to February 2019’s key demand, sell-side continuation there to 2.48s into Thursday’s auction.

This week’s auction saw sell-side continuation through key demand areas to near two-year lows.

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, following last week’s balance development near key support, 2.63s. This probability path did play out as early week selling interest drove price lower to test 2019 major demand, ultimately driving price through this area to 2.48s ahead of Thursday’s close, settling at 2.48s, a near two-year low.

NG Weekly 12Apr19NinjaTrader

14-18 April 2019:

This week’s auction saw selling interest early in Monday’s trade at key support, driving price lower in a sell-side breakdown. Price discovery lower developed into Tuesday’s auction, achieving a stopping point, 2.57s. Buying interest emerged there, halting the sell-side auction as narrow, two-sided trade developed, 2.57s-2.58s, into Wednesday’s auction.

Selling interest emerged in Wednesday’s trade, 2.56s, driving price lower in sell-side continuation. Price discovery lower developed, achieving a stopping point, 2.50s, into Wednesday’s NY close. Sellers trapped there as narrow balance developed into Thursday’s auction. Large two-sided trade developed into the EIA release (+92 bcf vs. +85 bcf expected). A probe lower developed to 2.48s where sellers trapped, driving price higher to 2.52s. Buyers trapped there before sell-side continuation developed probing the low ahead of Thursday’s close, settling at 2.48s.

NG Weekly I 18Apr19NinjaTrader

This week’s primary expectation of price discovery lower did develop, as last week’s key support and 2019’s key demand both failed. Like last week, this week’s auction formed a structural unsecured low, 2.48s.

Looking ahead, the near-term bias (2-4 week) remains sell-side, as the corrective phase from 2.90s is potentially amidst its third wave. The sell-side rejection early week at key supply, 2.70s-2.73s, continues to support the sell-side premise. Focus into next week centers upon market response to this week’s key cluster, 2.52s-2.48s. Buy-side failure to hold the auction there will target major key demand, 2.20s-1.50s. Alternatively, sell-side failure in this area targets the key supply clusters overhead, 2.57s-2.61s/2.71s-2.73s, respectively. 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 at prior key demand, 2.54s.

NG Weekly II 18Apr19NinjaTrader

It is worth noting that despite the approximately 48% decline from the November 2018 high, no material Managed Money (MM) short posture is yet present. MM short trend began a trend higher in February. It is only with materially larger MM short posture that the market has seen structural lows develop in recent years. This development occurs amidst continued declining market leverage (Open Interest). Based on recent years’ data, current MM posture is not consistent with MM posture that typically contributes to the formation of a structural low. Despite expectations of higher prices, participants have yet to go all-in with a bearish premise. The larger key demand, 2.20s-1.50s, will likely be tested before a structural low can be developed.

NG COT Weekly 19Apr19Sharedata Futures, Inc.

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.