NG Weekly: Prior Key Support Fails As Price Discovery Lower Continues To 2.16s, 3-Year Lows

by: Sharedata Futures

Selling interest early week resulted in sell excess at 2.42s.

Rotation lower into mid-week, testing key support, selling interest there, and sell-side continuation to 2.16s.

This week’s auction saw balance development before failure of key support, 2.31s-2.33s, and price discovery lower to three-year lows.

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, the highest probability path for this week was for price discovery higher. This probability path did not play out, as early week balance above key support, 2.31s, failed mid-week as price discovery lower developed to 2.16s ahead of Friday's auction, closing at 2.16s.

NG Weekly 14Jun19 NinjaTrader

16-21 June 2019:

This week's auction saw sell excess develop early in Sunday's Globex trade, 2.42s-2.40s, as last week's resistance held. Narrow, two-sided trade developed, 2.35s-2.40s, into Tuesday's auction before selling interest emerged, driving price lower to test key support into Tuesday's NY close. Two-sided trade developed late Tuesday into Wednesday's auction as buyers failed to hold the auction, 2.34s-2.32s.

A sell-side breakdown ensued late in Wednesday's trade, driving price lower, achieving a stopping point, 2.27s, as buying interest emerged into Wednesday's NY close. Wednesday's late buyers failed to hold the auction as new selling interest emerged in Thursday's trade, 2.29s/2.27s/2.26s, into the EIA release (+115 bcf v +107 bcf expected) driving price lower, achieving the weekly stopping point low, 2.16s, a three-year low in price into Thursday's NY close. Buying interest emerged there into Thursday's NY Close, holding the auction, developing balance, 2.16s-2.22s, ahead of Friday's close, settling at 2.16s.

NG Weekly 21Jun19 NinjaTrader

This week's primary expectation of price discovery higher did not develop as key support failed resulting in price discovery lower to 2.16s, three-year price lows. This week's auction occurs within the context of sell-side continuation into the four-year major demand cluster, 2.20s-1.5s.

Looking ahead, this week's failure of prior key support, 2.31s, implies the market continues to seek a price at which the sell-side sequence will be halted. Focus into next week centers upon market response to the four-year demand cluster, 2.20s-1.50s, which we have noted for months and which the market finally has visited. Sell-side failure in this area targets the key supply clusters overhead 2.32s-2.40s/2.54s-2.57s respectively. Alternatively, buy-side failure to drive price higher there will target key demand clusters below 2.08s-1.94s/1.77s-1.60s respectively. In the intermediate-term (3-6 month) context, while bias remains sell-side, conditions in the leveraged capital posture are showing signs of potential for structural low formation.

It is worth noting that despite the approximately 56% decline from the November 2018 high, only in recent weeks has the Managed Money (MM) short posture begun to reach levels consistent with structural low formation (typically 300-350k contracts). It is also worth noting that MM net posture flip noted two weeks ago has continued to increase (-149k contracts). This development implies that MM sentiment has finally turned to a bearish view as price reaches lows, most notably four-year demand, 2.20s-1.50s. In the last two instances of this development (March 2016 and December 2017), NG subsequently rose from 1.70s to 3.25s and 2.65s to 4.5s, respectively. MM posture is nearing the needed quantities implying a structural low will be developing in weeks/months ahead.

NG COT Weekly 21Jun19 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.