Sell excess emerged in Sunday’s trade at last week’s key resistance, 2.72s.
Price discovery lower to 2.50s where balance developed ahead of Thursday’s holiday-shortened auction.
Sell-side breakdown in Thursday and Friday’s trade, driving price lower to 2.27s into week’s end.
This week’s auction saw sell-side defense of key resistance early week before price discovery lower developed through key support to 2.27s into week’s end.
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, the highest probability path for this week was for price discovery higher barring 2.72s holding as resistance. This probability path did not play out as structural sell excess developed in Sunday’s auction at key resistance before price discovery lower developed to 2.50s into Tuesday’s auction. Narrow balance trade developed near key support mid-week before a sell-side breakdown developed in Friday’s auction, driving price lower to 2.27s ahead of Friday’s close, settling at 2.28s.
24-29 November 2019:
This week’s auction saw a failed buy-side breakout attempt in Sunday’s auction, achieving the weekly stopping point high, 2.74s. Structural sell excess developed there before price discovery lower developed through Monday’s trade, achieving a stopping point, 2.56s. Buying interest emerged, 2.57s-2.58s, into Monday’s NY close. Monday’s late buyers failed to hold the auction as price discovery lower continued in Tuesday’s trade, achieving a stopping point, 2.50s, near key support. Buying interest emerged there into Tuesday’s NY close, halting the sell-side sequence.
Price discovery higher developed into Wednesday’s auction to 2.55s, as balance developed, 2.55s-2.49s, into Wednesday’s NY close where buying interest emerged, 2.49s-2.51s, ahead of Thursday’s holiday-shortened auction. A minor sell-side breakdown developed in Thursday’s trade, achieving a stopping point, 2.45s, upon Thursday’s Globex re-open. Selling interest emerged there early in Friday’s trade, driving price aggressively lower, achieving the weekly stopping point low, 2.27s, ahead of Friday’s close, settling at 2.28s.
This week’s primary expectation of price discovery higher did not develop as key resistance, 2.72s, held. Structural sell excess formed there in Sunday’s trade, providing indication and warning of potential price discovery lower. Price discovery lower then ensued, testing key support, 2.50s, before selling interest emerged there, driving price aggressively lower to 2.27s into week’s end. This week’s auction saw continuation of the corrective phase from 2.90s to 2.27s within the context of the structural low development in the four-year major demand cluster, 2.20s-1.50s.
Focus into next week centers upon market response to key demand, 2.35s-2.20s. Sell-side failure to drive price lower from this area will target key supply clusters above, 2.50s-2.55s/2.70s-2.75s, respectively. Alternatively, buy-side failure to drive price higher from this area will target key demand clusters below, 2.10s-2.02s/1.80s-1.60s, respectively. The sell-side sequence from 2.90s is likely near complete. From a structural perspective, the highest probability path, near-term, is sell-side, barring 2.51s failing as resistance. The four-year demand cluster, 2.20s-1.50s, which we have noted for months and which the market revisited, remains key to the larger structural view. In the intermediate term (3-6 month) context, conditions in the leveraged capital posture from mid-June-September 2019 reflected signs of potential structural low formation as the market traded to this major demand area.
It is worth noting that despite the approximately 59% decline from the November 2018 high, only from June through early September 2019 had 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) declining into mid-September (-207k contracts). This development implies that MM sentiment reached extreme bearishness as price reached lows but has now balanced following the initial rally from 2.02s to 2.90s. In the last 2 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 net posture remains short (-136k contracts) and appears to have bottomed, August-October 2019. Due to the holiday-shortened week, this week’s report will be released on Monday, 2nd December. While no new data is available at the time of this writing, the MM long:short ratio and MM net long position as % of OI reach levels typically consistent with structural low formation. MM posture reached quantity needed to develop structural lows from July-September. This development is likely now underway.
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.