In this article, we examine the significant weekly order flow and market structure developments driving NG's price action.
As noted in last week's NG Weekly, our primary inference was neutral based on the response to last week's key cluster, 2.55s-2.51s, within the context of a failed sell-side breakdown from multi-month support, 2.54s. This probability path played out predominantly as balance developed, 2.55s-2.61s, through early week within last week's key supply before a minor probe higher developed to 2.63s, where selling interest drove price back into prior balance to 2.55s, ahead of Friday's close, settling at 2.56s.
28 April-03 May 2019:
This week's auction saw minor price discovery lower in Monday's trade as last Friday's late sellers held the auction. Price discovery lower developed, achieving the weekly stopping point low, 2.55s, where sellers trapped amidst buy excess. Price discovery higher developed early into Tuesday's trade, achieving a stopping point, 2.61s, testing last week's high. Minor sell excess developed there, driving price lower as balance continued, 2.61s-2.56s, into Wednesday's auction.
Rotation higher developed early in Wednesday's trade as a buy-side breakout attempt developed, achieving the weekly stopping point high, 2.63s. Selling interest emerged, halting the buy-side sequence, driving price lower back into prior balance. Selling interest emerged, 2.60s, ahead of Thursday's NY open, driving price lower. Price discovery lower developed through the EIA release (+123 bcf v +114 bcf expected), achieving a stopping point, 2.56s. Buying interest emerged there, as a retracement rally developed into Friday's auction to 2.61s. Selling interest emerged there, driving price lower to 2.55s, testing the weekly support, ahead of Friday's close, settling at 2.56s.
This week's primary expectation of neutral activity did develop as two-sided trade predominated around last week's key supply, 2.57s-2.61s. A minor probe higher to 2.63s failed as selling interest emerged there, driving price lower back into prior, challenging key support into week's end.
Looking ahead, the near-term bias (2-4 week) remains neutral. The retracement rally and stopping point high development of this week imply the rally may have exhausted. Focus into next week centers upon market response to this week's key demand cluster, 2.56s-2.55s. Sell-side failure in this area targets the key supply clusters overhead, 2.71s-2.73s/2.85s-2.87s, respectively. Alternatively, buy-side failure to hold the auction there will target key demand clusters below, 2.53s-2.49s/2.47s-2.44s, 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. The market response around 2.54s remains structurally significant in coming days/weeks.
It is worth noting that despite the approximately 50% decline from the November 2018 high, the Managed Money (MM) short posture is not yet consistent with quantities consistent with structural low formation (typically 300-350k contracts). It is only with materially larger MM short posture that the market has seen structural lows develop in recent years. The MM short posture (163k contracts) began a trend higher in February. This development occurs amidst continued declining market leverage (Open Interest) and MM net long posture. 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 recent expectations of higher prices, leveraged participants have yet to go all-in with a bearish premise. While posture is approaching the needed quantities, the larger key demand, 2.20s-1.50s, will likely be tested before a structural low can be developed.
Sharedata 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.