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 within the context of a potential stopping point low development at 2.02s. This probability path did play out as balance development early week occurred before buying interest drove price higher mid-week to 2.27s into Thursday's trade. Buyers trapped there amidst selling interest, halting the buy-side sequence near key supply, driving price modestly lower to 2.17s ahead of Friday's close, settling at 2.20s.
11-16 August 2019:
This week's auction saw balance development during Monday and Tuesdays' auctions, 2.16s-2.09s, as last week's key demand cluster, 2.07s-2.03s, held as support. Sellers trapped, 2.09s, as structural buy excess developed in Tuesday's trade, driving price higher to 2.17s ahead of Tuesday's close, testing key resistance. A buy-side breakout attempt developed early in Wednesday's auction, achieving a stopping point, 2.20s, into Wednesday's NY open. Buyers trapped, 2.19s, amidst a structural sell excess which halted the buy-side sequence.
Price discovery lower developed through Wednesday's trade to 2.12s into the NY close where sellers trapped, 2.12s. Price discovery higher resumed as the breakout area held as support. Rotation higher developed early in Thursday's auction, testing Wednesday's high. Buying interest emerged, 2.19s, into the EIA release (+49 bcf v +58 bcf expected), driving price higher in buy-side continuation to 2.27s, the weekly stopping point high. Buyers trapped there amidst selling interest, 2.26s-2.22s, halting the buy-side sequence near key supply overhead. Price discovery lower then ensued into Friday's trade to 2.17s ahead of Friday's close, settling at 2.17s.
This week's primary expectation of price discovery higher did unfold as key demand held before price discovery higher developed toward key supply. This week's auction occurs within the context of a buy-side sequence following the structural low development within the four-year major demand cluster, 2.20s-1.50s.
Looking ahead, this week's auction saw key support hold before price discovery higher toward near-term key supply. Focus into next week centers upon market response to this week's key supply, 2.22s-2.27s. Sell-side failure to drive price lower from this area will target key supply clusters above, 2.29s-2.32s/2.38s-2.44s, respectively. Alternatively, buy-side failure to drive price higher from this key area will target key demand clusters below, 2.06s-2.02s/1.77s-1.61s, respectively. From a structural perspective, the highest probability path this week remains buy-side within the context of potentially completed corrective phase from 2.50s. The four-year demand cluster, 2.20s-1.50s, which we have noted for months and which the market has finally revisited, remains key to the larger structural view. In the intermediate-term (3-6 month) context, conditions in the leveraged capital posture are showing signs of potential for structural low formation.
It is worth noting that despite the approximately 59% decline from the November 2018 high, only since mid-June 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 weeks ago continues (-235k 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 has now reached quantity needed to develop structural lows. This development is likely now underway.
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.