NG Weekly: Buy-Side Continuation To Challenge July's Supply

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Includes: BOIL, DGAZ, GAZ, GAZB, KOLD, UGAZ, UNG, UNL
by: Sharedata Futures
Summary

Buy-side probe higher in Monday’s holiday auction, and sellers trap on re-test in Tuesday’s auction.

Price discovery higher to 2.50s ahead of week’s end.

This week’s auction saw buy-side continuation from August’s structural low, testing major supply overhead.

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 an incomplete buy-side sequence from 2.02s. This probability path did play out as sellers trapped in Tuesday’s auction near key resistance. Price discovery higher then developed to 2.50s within July’s major supply ahead of Friday’s close, settling at 2.48s.

NG Weekly 30Aug19 NinjaTrader

02-06 September 2019:

This week’s auction saw a minor buy-side breakout probe above last week’s resistance during Monday’s holiday shortened Globex trade. Price discovery higher developed to 2.35s. Minor sell excess developed there as balance ensued, 2.35s-2.29s, into Tuesday’s early trade. A minor probe lower developed into Tuesday’s NY open, achieving the weekly stopping point low, 2.27s. Sellers trapped there amidst a buy excess formation, halting the sell-side sequence. Aggressive price discovery higher ensued, achieving a stopping point, 2.37s, where large two-sided trade developed ahead of Tuesday’s NY close.

Tuesday’s late buyers held the auction as price discovery higher developed and additional buying interest emerged, 2.38s, driving price higher to 2.46s, where selling interest halted the buy-side sequence. Two-sided trade developed early into Thursday’s auction as buyers trapped, 2.46s/2.45s, driving price lower in retracement to 2.38s. Buying interest emerged there, halting the sell-side sequence into the EIA release (+84 bcf v +78 bcf expected). Balance developed, 2.38s-2.46s, through the remainder of Thursday’s trade. Buying interest emerged, 2.41s, in Friday’s auction driving price back to test the high. Buying interest emerged there, 2.46s, driving price higher in buy-side continuation, achieving the weekly stopping point high, 2.50s, ahead of Friday’s close, settling at 2.48s.

NG Weekly 06Sep19 NinjaTrader

This week’s primary expectation of price discovery higher did unfold as last week’s failed and price discovery higher developed into July’s key supply cluster overhead. This week’s auction occurs as a buy-side continuation within the buy-side sequence begun from major support, 2.02s, following the structural low development within the four-year major demand cluster, 2.20s-1.50s.

Focus into next week centers upon market response to July’s major supply cluster, 2.45s-2.50s. Buy-side failure to drive price higher from this area will target key demand clusters below, 2.36s-2.34s/2.30s-2.27s, respectively. Alternatively, sell-side failure to drive price lower from this area will target key supply clusters above, 2.53s-2.57s/2.60s-2.65s, respectively. From a structural perspective, the highest probability path this week remains buy-side within the context of an incomplete buy-side sequence from 2.02s (although the current 3rd wave of this sequence is likely close to completion). 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 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). MM short posture peaked the week of 13 August (-367k contracts). It is also worth noting that MM net posture flip noted weeks ago continues (-175k 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.

NG COT Weekly 06Sep19 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.