First and Last Word on Metals and Mining

Yes, we are still Metal Augmentor but why then are we seemingly so obsessed with natural gas that we would devote yet another analysis to its speculative merits or lack thereof? It’s simply because natural gas is one of a few markets — along with the precious metals and a select few commodities — that can offer a once-in-a-lifetime trading opportunity every 3 or 4 years!

Indeed, we have “stalked” natural gas for several years for this very reason and at some point we expect to be amply rewarded for the persistence if not patience. Based on the below technical update, our preference is to wait just a bit longer for further confirmation of a bottom before getting involved in any serious way for now — although we are already holding a minimal number of NYMEX Natural Gas call options just in case. Should the technical conditions flash green, we are fully prepared to deploy some serious speculative capital and we will try to discuss some of the possibilities for interested subscribers.

So without further ado, let’s take a look at this timely and exclusive technical update on natural gas from Eidetic Research.

~~~~~~~~~~~~~~~

Eidetic Research
August 30, 2011

The monthly continuation chart of Natural Gas, above, shows prices locked in a mostly horizontal range that has persisted for over a year.  Most of the trading during that time has been between $3.75 and $5.00 basis spot month NYMEX.  The monthly stochastic oscillator, while presently down sloping, is in neutral territory around 50 and reflects the ongoing price range.  There is little to be gleaned from this chart but the weekly continuation chart, below, is more informative.

Our simple pattern interpretation of the weekly chart is that an extended “V” bottom, a prelude to a reversal of the overriding long-term down trend, may be unfolding.  The schematic above the chart is self-explanatory: compare it with price action since the 2009 low.  Doing that, we see that prices are currently in the potential bottom’s extension phase, which is an approximate down channel (drawn through weekly closing levels).  Channel boundaries are presently at about $4.40 and $2.65 and spot month last traded at $3.909.

In addition to the simple pattern recognition that we have applied, weekly ADX and stochastic oscillator readings are shown.  The 10-period ADX is presently flat at 19.  Generally, a rising ADX that is above 20 is indicative of a market that has started to trend.  Therefore, we are watching the ADX for a demonstrated rise that would occur with any potential near-term price strength.  The 14-period weekly stochastic oscillator is declining.  Although no bullish divergence is evident, the absolute low level of the oscillator (slow %D = 14.8) implies that a period of upside price response could be pending.

The chart above is a daily continuation chart of NYMEX natural gas that dates from May 2010.  There are 3 notable points that we see at this time.  First is an open continuation chart rollover gap that was created in October 2010.  The gap is between $3.6560 and 3.2920.  Second, prices have spent approximately 10 months in a horizontal range between the illustrated red lines that represent resistance just above $4.85 and support around $3.75 that is also just above the rollover gap.  Third, July – August price weakness moved the daily 9-period stochastic indicator below 20 in early August, indicating an “oversold” near-term momentum condition.  Since then prices have been flat-to-lower, eking out new low closes on August 18 and again yesterday August 29.  Despite the new price lows, note where the 9-period daily stochastic indicator readings are:  flat within the 30 – 40 area and thus showing a bullish divergence.  So far price action has not responded to that constructive divergence setup.

On August 5, 2011, we wrote the following about the natural gas market:

Given that the natural gas market often establishes August – September price lows, we are watching the market for signs of such this year.  Ideally, we would like to see the current short-term down leg probe into the rollover gap, even if only marginally.  However, the market’s current “”oversold” momentum condition in conjunction with price proximity to trading range support may result in an August – September low that is above the gap.

The first indication of a tentative low would be any one-day bottom reversal range in the $3.75 area basis front month NYMEX futures.

Trading today featured a new low ($3.78 basis front month NYMEX futures) in the ongoing downleg that dates from early June.  Prices failed to hold their losses and finished at $3.909, thus establishing a one-day bottom reversal from just above $3.75.  No significant overhead chart levels or moving average lines were violated.

In the context of a negative monthly and weekly momentum backdrop along with price action itself confined to a 3-month down trend, today’s bottom reversal action does not yet amount to much.  However, the 20-day Bollinger band envelope (not pictured) is about as tight as it has been since March 2011 when the market embarked on a rally to the resistance zone and the 20-day moving average is at about $3.95.  The narrow Bollinger envelope and price proximity to the Bollinger moving average plus the positive daily momentum backdrop implies potential for another rally attempt.  A close above $3.95 in the next few sessions would be the first indication of that and a close above the most recent minor resistance point at $4.029 would strengthen the case for a sustained price rally.

We would need to see the front month futures close above $4.25 to shift from a near-term defensive outlook to a more neutral/positive one.  If renewed selling pressure undercuts today’s $3.78 reversal low then we would expect to see the continuation chart gap mostly filled as the market attempts to establish a seasonal low in September.

Disclaimers:

We currently own shares or positions in the instruments discussed herein. We have not been compensated by any party for this commentary. Options are particularly risky as you can lose your entire “investment”. Therefore, only buy options with money you can afford to lose and not lose sleep over. This is not investment advice, which you should seek from an investment advisor or licensed broker.

This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any commodity, futures contract, or option contract. Although the statements of facts in this report have been obtained from and are based upon sources that are believed to be reliable, we do not guarantee their accuracy and any such information may be incomplete or condensed. We do not assume responsibility for typographical or clerical errors in this report. All opinions included in this report are as of the date of this report and are subject to change without notice. Employees of Eidetic Research may hold positions in futures or cash markets that are either in accordance with, or contrary to, stated conclusions within this report.

About silverax

Tom has been told he is arrogant. Unfortunately only very strong medication will apparently chill him out, but he doesn't like to put things in his body that might dull his sharp mind. Which is like an ax. And no, he is not a Scientologist. He can, however, turn lead into silver by concentrating very hard. See picture for proof.
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130 Responses to Natural Gas Technical Update August 30 2011Comment RSS Feed

  1. Robert

    I apologize profusely in advance if I missed it, but did you post which month and what strike price your Nymex Natural Gas call options were?

  2. No, you didn’t….we didn’t. A few we’ve had for a bit and those are pretty much unsalvageable (October 5.5!). I believe zurbo bought some recently that are like November 5′s or October 4.50′s but I’m quite a bit ambivalent about those at this moment (and I mean moment)…although I must say we seem to do pretty well when I come up with a macro idea and zurbo executes the details! Ideally I’d like to get in the Feb’12 5.5s for <$400 per — that has all kind of good karma dripping from it — but if we’ve just seen the low, or we will be seeing it in a few days, then just about anything in October (no point going beyond 4.80) could be a “once in a lifetime” cheapo trade. I mean, say we do get a move back up to 5 or so by end of September (not at all unreasonable) — that would make the 4.80 you can pick up for $50 right now worth a cool 2k at expiration in 4 weeks. You can “ladder” it up from say 4.50 and pick up a 10-pack of these at various strikes for around $1000 if you’re a really high roller. November is interesting as well, in particular I would be looking in the near-5 level for the cheapos but especially if we get an early September bottom I think buying at the money calls could be very interesting as well. Okay, these are just some public thoughts and we’ll probably be getting more serious in the days ahead — for subscribers of course.

  3. kjm

    Just read some of Schaeffer’s stuff. Now the big new hot wet gas play is the Duvernay Shale in Alta. which is the host rock for the first Leduc wells. Encana is so high on it , they paid 300mil for rights in the area. They claim they could give the gas away free and still profit on the liquids.

  4. bart

    Encana calls might be another option

  5. Dave

    As both this and the http://www.metalaugmentor.com/analysis/natural-gas-its-that-time-again.html thread are public, could the implied subscribers thread be started so we can discuss further / in advance of any recs?

  6. Bart

    Interesting to see some of the lowest cost US onshore NG producers like UPL approaching new lows.

  7. Howard

    Does this impact your thinking on Natural Gas/
    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

    The Government Just Wiped Out 15 Years’ Worth of Natural Gas Reserves

    By Frank Curzio, editor, Penny Stock Specialist

    Friday, September 2, 2011

    The U.S. Energy Information Agency has a lot of explaining to do.

    The EIA is a statistical agency within the U.S. Department of Energy. It provides data and forecasts on coal, natural gas, electricity, renewable energy, and nuclear energy. The agency is known as the nation’s “premier” source of energy information.

    But last week, it admitted to a mistake that could send natural gas prices soaring…

    On July 6, the EIA released a detailed report estimating how much natural gas the U.S. has left in producing shale areas. The technical term they use is “undeveloped technically recoverable.”

    Some of the largest shale gas areas in the U.S. include the Marcellus, Haynesville, Eagle Ford, Barnett, and Fayetteville. Below is a list of EIA estimates for undeveloped technically recoverable shale gas in these areas.

    U.S. Shale Regions Shale Gas Resources (trillion cubic feet)

    Marcellus 410

    Haynesville 75

    Barnett 43

    Barnett-Woodford 32

    Fayetteville 32

    Eagle Ford 21

    At 410 trillion cubic feet, the Marcellus has the highest shale gas resources by far. The U.S. consumes roughly 22 trillion cubic feet of natural gas each year. So according to the EIA, the Marcellus alone holds more than 18 years of natural gas.

    But last week, another report released by the U.S. Geological Survey said the Marcellus formation has only 84 trillion cubic feet of undiscovered recoverable gas. That’s about 80% lower than the estimate provided by the EIA.

    Following the new study, the EIA said, “We’re going to be taking this number (84 trillion cubic feet) and using it in our model.” In other words, the EIA is admitting its estimate was wrong.

    This massive adjustment results in a decrease of 326 trillion cubic feet from potential natural gas reserves – 15 years of supply.

    That may not seem like a big deal. After all, some estimates indicate the U.S. has over a 60-year supply of natural gas. But these estimates are based on current demand. And looking ahead, demand for natural gas is expected to soar…

    • Natural gas is slowly replacing coal in terms of electricity generation.
    • Companies like UPS, Ryder, and Waste Management are purchasing trucks with natural gas engines instead of diesel. This trend could jump 10-fold if the current administration passes the Natural Gas Act. This legislation will provide tax incentives for heavy-duty truck manufacturers to switch from diesel engines to natural gas.
    • The U.S. will also start exporting natural gas at some point, forcing U.S. consumers to compete with a worldwide market.
    • Commodity expert Rick Rule believes natural gas will be used as a replacement for oil. Venezuela and Mexico, for example, are seeing huge declines in oil reserves. Rick predicts these two countries may not be capable of exporting oil into our country in five years. They represent over 35% of the oil supplied to the U.S. (That’s probably why most major oil companies are buying up natural gas assets hand over fist.)

    The huge revision lower in Marcellus estimates is a big deal. In fact, we may see estimates revised lower in places like Haynesville and Barnett in the future. This has enormous implications for energy investors… which I’ll be sharing with you in the coming weeks.

    If demand surges and reserves are not as big as originally thought, we could see a sharp move higher in natural gas prices in the coming years… a move few people expect.

    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

  8. thefroggydude

    One factor that few people consider is that although the number of horizontal wells have been increasing while the number of conventional gas wells have been decreasing in recent months, this may not lead to an increase in deliverable gas. Why not? If you dig deeper you find that the horizontal rigs have been migrating from dry gas shale areas to wet gas areas. What this tells us is that so-called gas explorers are really exploring for liquids, not gas. Over the next few months we may find that gas production actually peaks even though everyone is expecting it to continue growing. Watch the second derivative in gas production for a hint of things to come.

  9. Dave :

    As both this and the http://www.metalaugmentor.com/analysis/natural-gas-its-that-time-again.html thread are public, could the implied subscribers thread be started so we can discuss further / in advance of any recs?

    I will try to have a strategy article out on NG very shortly — looks like we are going to test the lows next week and perhaps fill the gap and if so the timing could be really good — although some of the nearby options are very cheap already (earlier today I personally picked up my first two NG contracts in past couple of years, spent less than $150 so far….!). The thing about NYMEX NG options on futures is that they are one of a very few things in this world that can give you a realistic shot at not just 100:1 return but perhaps even 500:1! No joke…but you can’t do it with stock options or UNG or whatever. You’ve got to have the real deal.

    Bart :

    Interesting to see some of the lowest cost US onshore NG producers like UPL approaching new lows.

    I’m disinclined to give much of a hoot since the odds are that whatever might make NG prices rise strongly could also potentially cause some of these plays to fall (weather, infrastructure, fracking problems).

    @Howard

    They have been adjusting the numbers for years although this one is clearly significant in the longer term. I’m not sure the impact here is short term as in weeks or even months assuming that it in fact will have an impact (maybe they adjust upward at some point again?). From my perspective the steep runoff rate on the shale gas pressures could be more relevant because at some point you reach a “peak” of new well spudding and after that you will probably have falling production regardless of how many new wells continue to come on line. Plus I still remember when Bush jr. passed the big ethanol subsidies and it took a year or more for the corn market to price in the implications. Longer term, yeah, it could be something but then again the gist is basically that these shale plays have less “umph” than thought and so that is a negative for the shale gas producers — I guess to the benefit of “wet gas” and the commodity itself…

    thefroggydude :

    One factor that few people consider is that although the number of horizontal wells have been increasing while the number of conventional gas wells have been decreasing in recent months, this may not lead to an increase in deliverable gas. Why not? If you dig deeper you find that the horizontal rigs have been migrating from dry gas shale areas to wet gas areas. What this tells us is that so-called gas explorers are really exploring for liquids, not gas. Over the next few months we may find that gas production actually peaks even though everyone is expecting it to continue growing. Watch the second derivative in gas production for a hint of things to come.

    I didn’t consider this closely but basically it is similar to the peak spudding idea — although I don’t think we are talking months, more likely a few years … but it is everybody’s guess. Also we aren’t at full capacity on the existing wells so there is probably room to let those run as pipe

  10. Dave

    silverax :I will try to have a strategy article out on NG very shortly — looks like we are going to test the lows next week and perhaps fill the gap and if so the timing could be really good

    I was still hoping we could have further subscriber-only discussion before a strategy is produced, but since some of the points I’ve been trying to remind myself about are now being mentioned, here is my “reading list”, some articles a bit dated, and a few recent additions….

    A few influences on a NATGAS trade…
    1) Do the futures work for NATGAS? A comment on futures in general with NAGGAS as a worse example, See Oct09 http://seekingalpha.com/article/165106-natural-gas-worst-investment-ever?source=article_sb_picks
    2) Is there a glut that is disappearing, Bill Powers Feb 2010, http://www.financialsense.com/editorials/powers/2010/0224.html
    3) Or! Is there a continuing glut, Dave Forest (Pierce Points, but unfortunately under the Casey label here) Nov 2010 http://www.theenergyreport.com/pub/na/7843
    4) Rick Rule’s investment approach, back in Dec 2010, about half way down, http://www.gril.net/interview/rick-rule-on-the-energy-report-caution-extreme-volatility-ahead wonder which companies he had in mind (don’t mention the geotherms though!).
    5) Don’t compare with oil, http://seekingalpha.com/article/262050-a-reality-check-for-wind-power-investors#comment-1576303

    6) UBS comment 2011-08-31: US natural gas prices also followed broader commodity indices, with prices sliding below USD 4/mmbtu. Larger-than-expected inventory increases kept prices under pressure. Extreme hot weather conditions in July started to normalize during August, requiring less natural gas for electric power generation to meet cooling demand. This has been sufficient to allow inventories to build beyond the seasonal norm. The US Energy Information Administration (EIA) in its August short-term energy outlook raised the marketed natural gas production in 2011 to 65.51bcf per month. Horizontal drilling in onshore unconventional shale formations should keep productivity on the rise and the US market well supplied. According to BrookHunt, the average gas rig operating in the US is 1.5 times more efficient in 2011 – in terms of the amount of gas that can be produced in a year as compared to 2008. Thus, we remain confident with a sideways forecast for US natural gas.
    [I say this is too simplistic, but right for the wrong reasons]

    7) Keith Schaeffer tweet: (August 30, 2011 at 08:56 am) “The weather outlook implies a possible triple digit storage build in natural gas for the week ending September 8th-Canaccord–BEARISH”

    As well as supply issues, I don’t think you can look at the Winter demand issue without looking also at how much gas is not being used by industry (and is thus spare, or have they now adopted NATGAS) and how much coal will be used as the preferred source for extra electricity production (controlled by economic advantage and spare burning capacity I assume). With no (material) demand increase I’m not thinking there will be much price appreciation. Also, how close are the gas stores to being full I wonder.

    Looking at the chart (Oct NG, day only (on IB), thus no continuation gap and lower low and slightly different Hs and Ls ) We certainly saw signs of consolidation just above 3.8 (one poke below shown on 24hr chart), despite the big pop, I see the trend line from June rejected the Thursday bar and that the 4.15ish high is untested, the downtrend looks intact, although weaker. Meanwhile the whole economy (not) thing looks quite enough to be a weakening influence. If this is a bottom then in an ideal “show me” world the thursday high and trend line would get taken out followed by a pullback to 3.85ish for a good entry, or to some other technical entry that has developed meanwhile! Not to say I wouldn’t be tempted by something small as there are obviously some buyers here, but I have everything else in the back of my mind.

    re “I mean, say we do get a move back up to 5 or so by end of September (not at all unreasonable) — that would make the 4.80 you can pick up for $50 right now worth a cool 2k at expiration in 4 weeks. “, eye-balling the chart, that looks like a bigger seasonal rise than we’ve had recently? Certainly price has risen faster than the line from now to the time and price target implies, but has never done so for so long – one “parabolic” move too far? I’d like some thought on why that move is (statistically) reasonable :)

    • joey

      @Dave
      “4) Rick Rule’s investment approach, back in Dec 2010, about half way down, http://www.gril.net/interview/rick-rule-on-the-energy-report-caution-extreme-volatility-ahead wonder which companies he had in mind”

      Dave, some email buddies of mine and I had a few exchanges re this about a month ago.

      At PDAC last march after Rick Rule’s presentation, there was a big scrum outside the speaker’s hall which went on for over an hour; and somebody asked RR what natgas stock he liked; my buddy reminded me that RR said Anderson Energy (AXL.to ) was his favourite because of its huge viable reserves.

      I know not much about AXL except that they have well and truly hammered; other buddy said on their ipo they were an instit

    • joey

      @joey

      whoops. continuing re AXL.to…they were institutional favourite and heavily into natgas…ergo, their weakness; but I see from the website that do seem to be emphasizing a shift in their priorities.

      just looking at insider activity: all buys; no sales, all the way down..(Hat tip Zurbo for referral to this site!)

      http://www.investorpoint.com/stock/AXL%3ACA-Anderson+Energy+Ltd./insider/All%20Insiders/All%20Types/

    • Dave

      @joey
      re AXL, confirmation and a bit more info: “I bought more AXL today, have been accumulating since PDAC when rick rule recommended it to me.
      should be a 10 bagger within 2.5 years”, http://www.stockhouse.com/bullboards/MessageDetail.aspx?p=0&m=29441493&l=0&r=0&s=AXL&t=LIST
      As that was10x1.2ish, 20x from here! And only 18months to go!

      Don’t know much about them, but chart looks like a knife dropped on a ski slope and I have no idea how long the slope is.
      Sounds like they had some drilling probs, see Corp Update linked on SH.
      Apparently “This makes me laugh!! CIBC puts an underperform but with a $1.30 price target.”
      Looks like there’s some recent results to read ($1.78 NAV?), they are part hedged.
      You know any more?

  11. idiotic

    Here is our brief follow-up to the above Technical Update.

    On balance, price action in Nat Gas after our Aug 30 comments was negative. Following a bottom reversal action at $3.78 prices took out a minor resistance level at $4.029 basis front month NYMEX on Aug 31. However, there was no confirming follow-through – prices finished lower the next 2 sessions and back below $4.029. Range expansion as seen in the 2 days immediately after the bottom reversal was a negative development in the sense that lasting price lows more frequently are followed by small recovery daily ranges that demonstrate buyers’ doubts as to the validity of the low rather than by large ranges that suggest opinionated one-sided buying. The weekly chart turned in a negative “outside” range. Weekly stochastic readings continued to deteriorate but are at levels that would favor a potential price turn. The weekly ADX edged to 18, a further indication of momentum deterioration.

    The one notable development is that the weekly high at $4.13 was just below the most recent minor high made in early August at $4.143. So, we now have a very obvious resistance zone between $4.13 – 4.143 that the market must overcome to demonstrate a change in the current buying power/selling pressure equation. We still believe that the front month futures need to close above $4.25 to shift from a near-term defensive outlook to a more neutral/positive one.

    The continuation chart rollover gap discussed in the above analysis represents downside price potential. We looked back over the years and have found only one similar gap (September 2006) that was not filled prior to prices making a cyclical advance. Therefore, ideally, last year’s gap should be at least partially filled before the market makes another sustained trip toward its range highs – i.e. above $10.00.

    • @idiotic

      Thank you for the timely update, greatly appreciated!

    • Drew

      @Bart

      Bart – thx for the chart

      idiotic – “continuation chart rollover gap” – I don’t know what this is referring to . . . but overlay the July/Aug 2011 chart with the July/Aug 2010 chart . . . is this what you are referring to? I don’t know why NG gapped up in Nov 2010. Maybe there was news? Thx,

    • Dave

      @Drew

      The futures contract that is next to expire is the “front” one (can be monthly or longer), as it comes to an end the volume moves to the “next” one as long-term traders roll their positions and day-traders add some positive feedback to that change (follow liquidity so to speak).

      Just as there is a price difference between both a future and a spot price, partly depending on interest rates (lower rate = lower difference as cost to own is lower with the future usually costing more) and partly on storage costs, so there is between one future and another (aka the calender spread).

      So the problem when creating a price chart based on futures is that you have to decide how, and when, to “roll” from contract to the next, and what to do with the gap that usually exists.

      These “time cost” gaps aren’t nice, but making a percentage price change to the historic data so it fits smoothly with the new data is also not nice.

      I’ve never understood why people don’t insist on long term spot price charts for longer term analysis, and futures charts for short term entries.
      But often they don’t seem to exist, so I must be missing something – possibly the absence of an reliable traded “exchange” price, like you get for a future.

      BTW, NATGAS spread Oct – Nov is a tad under .1 as I write = 2.5%, with ES is sep to dec and is only 6 / 1130 = .6% approx.

  12. Drew

    “making a percentage price change to the historic data so it fits smoothly with the new data is also not nice.

    thanks for pointing that out.

    Note to self – always figure out what security the chart is charting.

  13. I would say “statistically unreasonable” would be less than 5% chance — subjective as it might be, my opinion is that NG has a better chance than that to make a run at $5 by end of September. For example, statistically speaking, NG made a $1 up move between start and end of September in the past 2 out of 4 years. In 2010, it bottomed at $3 in early November but then went on to rally by $1.50 by end of the month. So NG has had a $1.00 or more single-month rally in the Fall in 3 out of past 4 years (2 out of 4 being in September) with the only exception being 2008 in which basically no commodity had a Fall rally. Of course the Oct. NG futures options don’t expire at the end of September but rather Tuesday Sept 27 and that could make all the difference…

    Regarding contango in NG, it is by and far seasonal with very little interest carry or other effects. This is due to the fact that NG usage swings are large compared to storage close to market. In effect, users/utilities buy forward to guarantee a certain winter price and that creates the premium vs. spot prices.

  14. Dave

    Keither Schaeffer twwet: Bentek estimates US production today at 63.5 Bcf, and National Bank says get ready for more gas production records this week. BEARISH

    • @Dave

      We have put on a trade and may discuss over the weekend in a post: buy 1 Nov NG call slightly out of the money (the premium is almost nothing at this point) and buy 2 Dec NG puts a bit more out of the money but taking advantage of the significant 25-30 cent contango between Nov-Dec contracts. A washout in NG could have this trade down at $3 and of course at any time NG can easily rally by $1 for no reason even if the market is overall bearish. Either way it would be around a $5k return with risk being that NG withers on the vine and spend the next two months trading essentially flat. The nice add-on is that the puts are sort of a hedge in case the ugly markets continue into October as that should mean NG approaching its 2010 (around $3) or even 2009 low ($2.20). We sell the first put if we go down enough to pay for the whole trade and hold the second for a capitulation style drop so common of NG bottoms.

  15. Bart

    Taking a crack at Natural with some April 2011 20 calls on ECA @ 2.35

    • @Bart

      That’s not too bad although you should get an IB or futures account so you can trade NG itself. You can lose money WAY faster that way! ;)

    • Bart

      @silverax

      Working on the IB account. Or make money faster… that’s where idiotic and you come in!

    • idiotic

      @Bart

      Yeah. Well you got that one right.

      As of 9/30, the chart pattern since the June high looks like a 5-swing sequence with the mkt currently poised to further develop the fifth swing. Thur-Fri expanded ranges with net lower closes look negative just in a casual perusal. Fri did feature a low level daily stochastic indicator down cross so the odds should favor generally lower prices in the coming. If the nearby Nymex futures can now break below $3.656, putting values into the October 2010 continuation chart rollover gap, that would be a plus. Given weakness into the gap, we would look for either of 2 developments to become tentatively, emphasis on tentatively, positive – ie. want to be long Jan futures: a daily bottom reversal that is a relatively large range (say at least 15 – 20 cents) or, lacking overt reversal action within the gap then a nearby futures close equal to/above $3.855. To be more than tentatively bullish, we would like to see a nearby close above $4.13.

      We wouldn’t feel that we had given the mkt too much leeway by adopting the latter as an indicator of a potential trend change. After all, if a major low is setting up that will support an up move above $10, then letting the mkt show us that it has some upside staying power isn’t really a sacrifice.

  16. Bart

    Opportunity if you can’t trade future options…

    ProShares, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of ProShares Ultra DJ-UBS Natural Gas (NYSE: BOIL) and ProShares UltraShort DJ-UBS Natural Gas (NYSE: KOLD), the first ETFs in the United States providing magnified or inverse exposure to natural gas futures.

    • forwill

      @Bart

      Nice! Thanks

  17. Dave

    Keith Schaeffer tweet: “Alberta is pumping 1.4 bcf/d of natural gas into storage now vs. 0.8 bcf/d this time last year-BEARISH”

  18. idiotic

    October 14, 2011 follow-up to the Aug 30 post

    Market action in the past week was constructive to the case for a pending change in the intermediate-term downtrend that has been in effect since June 2011. Trading on Thursday reached a new multi-month low at $3.446 (nearby Nymex futures) but prices finished the day net higher. That bottom reversal action was within a continuation chart rollover gap that dates from October 28, 2010. The reversal action was the third in a six-day period. We often see trends terminate with a series of 3 reversal days that are tightly spaced in time, as is this occasion.

    An expanded range higher session today served to establish an “outside” weekly range to the upside. That positive price action was accompanied by a weekly 14-period stochastic indicator upturn from below 6 (Slow %D value) – obviously an intermediate-term “oversold” condition. There was no positive divergence that would have enhanced the constructive inference of the indicator’s upturn. Daily 9-period stochastic indicator readings, which had turned up earlier in the week, surged out of their “oversold” area favoring more short-term price recovery potential.

    Since 1999, the ideal month for a seasonal or cyclical low in the second half of the year is September so this past week’s low doesn’t fill that bill. Nonetheless the market turned in a positive combination of short- and intermediate-term price and momentum developments in the past 5 trading sessions and that combination occurred in the middle of a long-standing open gap ($3.656 – 3.292). That may be sufficient evidence for aggressive traders to approach the market from the long side. We need a daily chart close above $3.86 to consider the June-October downtrend as being neutralized (Today’s official session settlement is $3.703).

    We note 2 minor negative factors: first today’s large upside range only a day off of an intermediate-term low implies an immediate shift in bullish sentiment. We more often associate solid trend upturns when prices show a more two-sided hesitancy when initiating a trend turn. Second, there is about a 25-cent contango between spot month November and December futures. Unless that premium is significantly narrowed before November goes off the board near the end of this month, then there will be another sizable rollover gap created on the continuation chart. As we have noted previously, natural gas may be able to generate admirable several dollar rallies in the wake of an unfilled rollover gap but there has not been an instance of a cyclical advance toward the historic range highs above $10 without open gaps being filled first.

  19. Dave

    KS Tweet “Cdn natural gas storage is full; US natgas inventory this week very bearish, yet natgas prices up on Friday–has my attention–#gas”

  20. Dave

    KS Tweet: Chart watchers noted that volume picked up sharply last week as natural prices moved higher in 4 out of 5 days–a potentially bullish sign

  21. Dave

    KS Tweet: “US #gas down on warm temperatures; Cdn #gas up on cold temperatures” (over half of last few day’s push has retraced)

    All down to the weather, of course. I’ve been reading bits of Piers Corbyns’ “solar powered” http://www.weatheraction.com/pages/pv.asp?p=wact48. He sells just the kind of forecast needed, but for an institutional price! Beware that he has an uncompromising attitude to global warming proponents. He also claims to be statistically validated and to out-perform the like of the UK’s Met Office on the days to weeks forecasts at least..

  22. Dave

    from DP’s LE:
    Meanwhile, the oil and gas analysts at Canaccord have gotten together and taking a look at the new world, decided to lower expectations for oil and gas prices. They are now lowering their 2011 AECO natural gas forecast to $3.70/mcf from $3.79/mcf and their NYMEX gas price to $4.10 from $4.26. Their long-term forecasts remain $4.40/mcf at AECO and $5.00/mcf NYMEX for gas.
    As far as oil, they are lowering their expectations for WTI price to $91.56 for the year 2011 from $96.68 and for the year 2012, they are using $85 a barrel from $92.50. As far as the long-term price forecast they are now using $92.50 per barrel from $97.50.

    Meanwhile, I see there has been more mention of the likely supply reduction in NATGAS due to rigs being moved away from dry gas (“The best cure for low prices is low prices”? as an alternative to the other way around)
    And apparently gas development etc seems to be bringing a whole new wave of employment opps

  23. Dave

    Perhaps what we should take away from continuing price weakness is not (just) the possibility of good price appreciation in the future, but the investment opportunities in companies that will prosper from increased use of NG.

  24. Dave

    The “new” dec contract is .26ish above the Nov so there is a 7.7%ish gap up to be expected on the continuation charts (rollover was/is last day or two).

    And the dec contract has just made a new closing low below the early Oct lows.
    Low enough for one of our local (UK) distributors to have just signed-up for LNG imports from the US, so thanks for that (even though we are also finding our own shale). I did see a global map showing some price differentials yesterday, but I’ve lost it, I think Japan was highest around $17! You can see the reason for the interest in LNG!

  25. LNG presents long-term structural challenges because of the cost and permitting timeline of liquefaction plants. Until early October heavily-leveraged Cheniere (LNG) was arguably the way to trade exposure to possible growth in global LNG trade — the stock is now up from $4 to $12 (a triple!) in less than a month! We did look at it when it was $4 but didn’t do anything, alas! Despite today’s strong move up, I’m inclined to think NG itself will make a low in the Dec contract within several weeks perhaps with a final exhaustion move that creates a double or triple bottom on the long term chart (between 2.60 and 3.20). Then again, it would be completely normal for a move of up by a dollar from the low (i.e. to 4.70) in the next 2-3 weeks going into the winter season as supply shifts from just in time to forward contracts. We should probably have done yet another near-the-money call trade in the December options but lately almost every trade seems to be a day late and a dollar short…can’t complain given how we’ve done this year but the misses have been so darned tight! For example we had the October AGQ looking for silver to bounce to 37 or so but that too was a couple of weeks off…nothing like those Silvercorp calls though that we missed by one day but being a few moments late has been the theme with everything we’ve touched in options for the past month or two!

    • forwill

      @silverax
      NG is quickly closing in on your 2.6-3.2 range call. Any new thoughts?

  26. Tweetie

    @forwill

    EIA Weekly Natural Gas Storage Report still very bearish.
    NG in storage is 7% above the 5-year average for this time of year, and 1% more than last year.
    Last weeks 3,852 Bcf in storage was an all time high.

    And the production keeps going up……

    See: http://ir.eia.gov/ngs/ngs.html for EIA storage data and http://www.eia.gov/oil_gas/natural_gas/data_publications/eia914/eia914.html for EIA production data.

    Fundamentally I’d expect the price to go even lower.

    • forwill

      @Tweetie

      Thanks Tweetie, great info.

    • Dave

      @Tweetie

      Canaccord Monday: Time to get gassy? On Thursday, natural gas futures ticked up after the EIA reported the first storage withdrawal of the season, which surprised consensus and forced some short covering. The EIA reported a 1 Bcf storage withdrawal, which was well below Street’s 10 Bcf injection expectation and Canaccord Genuity’s 8 Bcf estimate. Storage now stands at 3,851 Bcf, 1% above last year and 7% above the five-year average. On comparative metrics, the year-over-year storage surplus expanded by 22 Bcf to 46 Bcf, while the five-year average surplus swelled by 28 Bcf to 261 Bcf (largest since December 2010). The injection implies a modest week-over-week loosening in the supply/demand balance and suggests the market has been almost 3 Bcfpd oversupplied on a four-week moving average basis. While certainly supportive relative to consensus, the surprise withdrawal is likely not a sign of sea change in the underlying supply/demand fundamentals.

      That said, Canaccord Genuity Portfolio Strategist Martin Roberge thinks we may be at or near a bottom. He believes the highlight in November was the temporary plunge in natural gas below coal prices. Also, while the price of natural gas could revisit 2009 lows around $3.0 mmbtu, he believes a bottoming phase is forming. Why? First, natgas is much cheaper than it was in 2009 vs. other sources of energy. Second, producers are finally showing some discipline with U.S. gas rig counts falling from 936 to 865 over the past six weeks. Third, injections have been much below consensus in November. Fourth, December exhibits a positive seasonality for natural gas prices. And fifth, natgas has been shorted against most commodities in 2011 and short-covering rallies to protect gains are likely before year-end.

      For investors looking for natural gas leverage, Peyto (~88% of production) offers investors high leverage to changes in the underlying commodity. For every +$1/Mcf change in natural gas prices, Canaccord Genuity estimates its contingent NAV increases by ~$9/share. Despite its high gas weighting, Peyto has peer average group cash flow netbacks, owing to its status as the lowest cost operator in the Basin.

    • Dave

      @Dave

      Update from one of the two weather forecasters that I monitor that use solar and oceanic conditions to predict the weather, this one is free, Weatheraction is not and is probably better, these peoples’ record is unknown
      http://www.exactaweather.com/USA_Long_Range_Forecast.html
      As a whole, I am still expecting an extremely cold and snowy winter for many parts of the United States. I expect to see the most severe snow events in the Northeast and Midwest this winter (New York City & Chicago in particular). I expect large parts of Central and North America to experience prolonged periods of well below-average temperatures, with parts of the Western United States experiencing some huge snowfall amounts too.
      As far as I know, weatherAction are predicting stormy and disturbed weather, rather than severe cold. So not sure how much weight to place on this.

  27. Look, the fundamentals of NG don’t look good when we just consider supply-demand and storage trends but one thing with the gas is that storage is NOT immediately responsive to draws and utilities/users have become accustomed to locking prices when they threaten to move substantially higher. This can become a major self-fulfilling prophecy as any passing look at a 10 year NG monthly chart will easily demonstrate. We don’t need a significant spike in NG prices for this to become yet another trade of the century — a typical $1 rise will make very good money whereas a $2 rise would make this into an elusive 100-bagger. I give the former about 30% chance and the latter 10%, which is excellent risk-reward for a speculative trade like this. I can’t back it up scientifically, it is just a feel developed over the past 25 years of trial and error (mostly error).

    • Dave

      @silverax

      Are you tempted by the Mar 5s selling at .001 at the moment? That extra month looks useful (the febs being late jan really), the 4.6 febs are .025 unfortunately.

    • @Dave

      Actually it is .01 ($100) and given the March contract is usually post peak or early in a new trend, I am not very tempted. You can get the Feb 4.6 for the same or the Feb 5 for maybe .004 (thus buying 2.5 contracts for every one of the March). 50 days is more than we need for this trade to work, another 30 is not necessarily going to make it pay off if 50 doesn’t….

    • Dave

      @silverax

      Thanks, ah yes, nothing like an accidental extra 0 to confuse things, when the “0″ was in it’s early adoption stage it was banned by some law-maker or other because its ability to make things 10x bigger!

    • Dave

      @Dave

      whoops, extra “‘” too

    • Bart

      @silverax

      Which strike / month do you see the 100 bagger in?

  28. idiotic

    We just took another look at the Natgas monthly futures charts for some long-term reference as regards market lows. Looking backward so as to think forward, here are some brief thoughts about the upcoming year.

    In the first decade of futures trading, 1990 – 1999, natural gas prices followed what we would call “short-cycle” upside trajectories. Advances typically occurred in a single season and various cycle highs peaked below $5.00, most of them during the October-December time frame. The probable time frame for cycle lows was January – February although lows were also seen in the second half of the year.

    In 2000 that behavioral characteristic changed when prices peaked just above $10. That year ushered in substantial volatility that has persisted. The market now typically makes exaggerated price advances that often span more than one season. Since the 2000 peak, cyclical lows now generally occur in August or, more likely, September. In only 3 years – 2002, 2005 and 2010 – did prices bottom outside of August – September. During 2002 and 2005 a price that was not a major cycle low, call it an intra-cycle low, occurred in January while a similar type low in 2010 occurred in October.

    Unless the market reverts to its pre-2000 behavior, the chances for a major cycle low during January – February 2012 are slim but an intra-cycle low that might give a $1 or $2 kick is still a possibility. More probably the August-September 2012 time frame will favor the establishment of a major trading low. If you’re looking for a giant-killer price advance, that’s the scenario you should be wishing for.

    • @idiotic

      Excellent update and cannot argue with it at all — the main compelling reason for the option trade now is that volatility has completely died and as a result we can pick up positions at prices that should not be anywhere near possible heading into winter. That and the horrible, terrible sentiment which is often necessary for a surprise move to develop. We also do have La Nina again this year and cold WILL arrive at some point. Out here in the West the wet season has started out quite dry unlike the last year’s La Nina where we actually and uncharacteristically got a lot of rain. Since La Nina drives Arctic air to lower latitudes east of the Rockies, we should get a colder than normal winter this year for most of the country, perhaps even colder than last year (though maybe not as snowy). Despite this NG is trading like it will be one of the warmest winters on record — and so far it has been pretty warm. You can’t get a much prettier setup than this and I expect that even a measly 30-50 cent reversal higher would get us in a position to sell a portion of our position to pay for the entire thing. Having the opportunity to do that is a VERY important factor that I look for in these trades because experience has taught me that you get saved SO many times by that simple act of sacrificing some of the options early on, in order to get your original money back.

    • forwill

      @silverax

      Considering that the ask is already up 30% on a day when the underlying was down about 2%, it looks to be a great entry point. When I went to buy, I was pleasantly surprised to see the bid/ask spread was a mere .001 or 11%.

    • Bart

      @forwill

      What month/ strike forwill? ;)

    • forwill

      @Bart

      I was following Zurbo’s Dec 5th post #51 here
      http://www.metalaugmentor.com/analysis/model-portfolio-allocation-performance-october-2011.html

      I had two of four that filled. They were
      Henry Hub Nat Gas FOP(NG) (2) FEB’ 2112 4.6 call @ .009 (ie $90ea)
      Henry Hub Nat Gas FOP(NG) (2) FEB’ 2112 4.8 call @ .006 (ie $60ea)

  29. forwill

    UH OH is this public? Please delete if so.

  30. Bart

    My bad if I asked on a publicly viewed post. Sometimes these trades are impossible to find !

    • forwill

      @Bart

      Nope, I did it, my fault.

  31. It’s fine, I doubt any non-subscriber who stumbles across this thread is going to rush out and buy a bunch of ridiculous, impossible-looking NG options. Note that I announced the copper puts I was buying back in 2008 on the SILVERAXIS blog when it was still decently popular and only a few people made that trade (several of whom were nice enough to thank me afterwards).

    • forwill

      @silverax

      I feel like a big DB for posting those option buys. To me, the options are now looking far from ridiculous. I plugged in OBV NGG2 and Mntnm(180) on a 6mos/daily bars chart that includes the default volume bars. The increase in volume alone is striking for the period.
      Idiotic’s “long standing open gap” was almost completely filled. 3.343 yesterday as opposed to gap low 2.292.
      I personally added some March buys at lower strikes yesterday to hedge my previous buys with more time value. Again, thanks communicating this great opportunity.

    • forwill

      @forwill

      Should read 3.292

    • Bart

      @forwill

      I would consider some copper puts before I went long NG at this point. Granted, Copper creeps up a little higher.

    • idiotic

      @forwill

      Actually, spot month traded back-to-back daily lows at 3.285 on both Nov 18 and 21 thus fully closing the gap. The subsequent quick bounce to 3.58 showed that the gap had some supportive validity but weakness seen in the week just ended puts the Oct 2010 low at 3.212, basis spot, in jeopardy. I’d really like to see that level broken in a liquidation drive that would carry all the way down to “test” the Sep 2009 low at 2.409. It’s probably pie in the sky thinking, but if a washout of that magnitude happened in January then we should be able to find a pretty low risk futures entry point to position for a substantial rally into the summer.

    • forwill

      @idiotic

      Yeah, I goofed up by only looking at the chart of the Feb ’12 contract. It dawned on me after I read your post that I would need to track a different contract(nearest expiry) each month to get the true history of price movements. Thanks for setting me straight and offering your outlook for a low risk entry point.

    • Bart

      @idiotic

      Something very special is happening with /NG right now.

    • Dave

      @Bart

      On the face of it, short-term weather forecast, surprise, surprise, seems to be the main cause of the Friday & Sunday drop , http://www.dailymarkets.com/forex/2011/12/11/natural-gas-futures-weekly-outlook-december-12-16/, which isn’t special in my book, other informative insights welcomed.

  32. Bart

    Sorry guys, looks like NG wants to double bottom before a break out scenario occurs.

  33. kjm

    I may have thrown about $300 out the window, but I am bidding on 100 Apr $9 UNG calls at 0.03. NG is at 2.76 and UNG has slipped to $6. Hard to see how ng could go lower but anything is possible. As long as they can make good money on the liquids , the ng price is almost irrelavent.

  34. Robert

    Capitulation in NG today? Down $.195 and still falling.

    It has been my experience with MA’s option picks that they VERY often pan out, but it simply takes longer than expected. I have always gone out at least 1 month further than they have and I have done very well. Granted that might not now work out in the case of NG Feb or March options, but the May and June options are dirt cheap and the above premise is unchanged-natural gas is one of the few commodities that is now offering a once-in-a-lifetime opportunity.

    Please keep the option plays coming.

    • @kjm

      Don’t forget the commission! That actually doesn’t look like a bad speculation — if we are near a bottom then NG should make a strong bounce and soon. Not saying anything sustained or a new uptrend but a strong bounce that clears the market (gets the “old baggage” longs and shorts to close positions). I don’t know what you mean by liquids, I thought UNG was based on the NYMEX NG futures contract…

      @Robert

      Possibly — the final low tends to be a washout but usually you get a second day where the price trades to the same low — often exactly to the penny — before the bounce. So we should know tomorrow. I’ll take a look at the various options but I think our high(er) probability window is now closed. Could make sense to go straight long the futures, or even UNG, to play a partial retrace into summer.

      On the option expirations, yes many times we are literally a few days off and the next expiration month would have worked much better. On the other hand, when it does hit we have very high leverage and we can also spend less on the play than going further out. Ideally with an account large enough one could and should take positions in several expirations and indeed we have done that in the past (with various degrees of success, actually mostly failure during the past 2-3 years).

    • idiotic

      @Robert

      Since the June highs, the market has developed at least 3 positive, or bullish, price/momentum setups. Each has failed to deliver in terms of improved (upside) price action. The repeated failure of those positive technical setups illustrates the entrenched and powerful nature of the ongoing decline.

      Yes, today’s increased downside price response may mark the start of a capitulation phase that could be part of a January-February bottoming action. However, we have shifted our thoughts toward September as being a more probable time for a seasonal, as well as potentially cyclical, price low.

    • Robert

      @idiotic

      Thank you for your update.

      Ultra short term I will be interested to see the market’s reaction following today’s stocks report at 10:30 EST. I have noticed on many occasions an immediate spike in one way or another then a slow reaction back the other way in the hours and days following. If a dramatic spike down occurs, I will have to hold my nose and buy more mini futures plus some very short term call options looking for a quick retrace. Gambling money only obviously but better odds that Powerball!

    • Robert

      @silverax

      FWIW-March Natural Gas hit 2.27 tonight, a mere penny above its Jan 23rd low. Could this be as silverax predicted-a retest of the low?

    • @Robert

      There tend to be two types of “double bottoms” in NG that I often see — one is on sequential days at nearly the exact price and the other is normally many weeks to months apart. This one doesn’t fit either of those templates although we did have two days of sequential lows and along with the strong desire for NG to repel up and away from the $2.40 level (basis the March contract) we could be at or near some type of bottom (I doubt it is a V-bottom but NG is a wily fellow so anything is possible).

  35. Dave

    Canaccord: “After three consecutive seasons of supportive weather trends, Mother Nature has clearly turned its back on the gas complex this winter. Withdrawal season to date, heating-degree days have averaged just 139 per week compared to 173 last year and the 10-year average of 154 per week. We estimate the anemic weather conditions have muted storage withdrawals by ~500 Bcf versus the same period last year. Looking forward, the gas complex may experience some respite in late January as preliminary weather forecasts suggest average U.S. temperatures could dip to up to 10 degrees below seasonal norms as we exit the month. While this could bring with it a minor relief rally, it is likely too little too late as weather would have to average ~14% colder than normal through the remainder of the heating season just to bring the spring storage exit materially below 2,000 Bcf. According to Canaccord Genuity Portfolio Strategist Martin Roberge, despite bloated natural gas inventory levels, industry fundamentals seem to have past their worst point. Like the U.S. economy, industrial gas demand could be resilient in 2012, and rising manufacturing weekly hours point toward this direction. Stocks with exposure to natural gas include: Encana (ECA), Progress Energy (PRQ), Celtic Exploration (CLT) and Open Range Energy (ONR).

    • Drew

      @Dave

      For the month of Dec, my heating oil bill was 40% lower than a year ago despite a higher oil price. And the temp is in the mid 50′s right now when it should be in the mid 20′s. Certainly huge demand destruction with regard to residential heating in North America.

      Thermal coal producers will have no pricing power when contracts roll over. Seems a good bet that coal buyers will be sitting on large stockpiles and will likely be defering deliveries.

      I need to find a highly-levered, high cost thermal coal producer.

  36. 1mh0tep

    @Drew

    Maybe you can start with this :
    http://www.frasermackenzie.com/newresearch/COAL_SCOOP/FM_Coal_Scoop_V2-1.pdf
    which lists some US an canadian listed coal companies with valuations and resource type …
    My favourite : Forbes & Manhattan coal (FMC.TO) but i don’t think it suits exactly to your needs.

    • Drew

      @1mh0tep

      Thanks for posting this. Lots of names I am unfamiliar with.

  37. kjm

    I need to veer away from mining and ng for a bit as this article is about oil, but I think everyone should try to wade through it for its obvious implications. Its sort of a Silveraxis type article.

    http://oilprice.com/Energy/Oil-Prices/Why-Oil-Prices-Are-About-to-Collapse.html

  38. Bart

    Wow a 4% drop in nat gas right now.

  39. Bart

    I’m calling a bottom on nat gas

    • kjm

      @Bart

      I’m betting closer to two bucks. Glad I never got filled on those UNG options.

    • David

      @Bart

      Another thing that must be kept in mind is the cost for storage. Suppose that this is indeed a bottom for nat gas, but that the price does not aggressively trend higher. Then the cost of storage could eat away at your position. This would be the case whether you speculate in call options, an ETF, or futures. For example, the July 2013 contract is priced about a full dollar above the Feb 2012 contract. One way or another, you will have to eat storage fees unless you can time a sharp up-move correctly, so the performance has to exceed those fees. With continued abundance of supply and lackluster demand, this makes speculating difficult.

    • 1mh0tep

      @David

      Yes, you’re right about contango.
      One good solution may be to buy some “bull put credit spreads” : the time value you’re selling is balancing the contango value … and now for bonus you’re about to sell a very big volatility (52% implied vol vs 36% historical vol) !

    • 1mh0tep

      @1mh0tep

      I think tonight is “a little capitulation”. UNG have its biggest volume since end of april 2010 and NG future is very close to its biggest too. Tonight is the last day of rolling period, and last but not least, implied volatility is very big : 57.6%, good time to sell options !
      I open a little position :
      1/buying 4 UNG bull put credit spread 4-5 FEB’12 for 0,28$ credit
      2/buying 9 UNG long call 7 APR’12 for 0.08$ debit

      I hope at least mean reversion if not a big NG rocket ;-)

  40. Bart

    I am also seeing an opportunity on PUTS on HND.TO Please look at the chart. We are seeing an unsustainable exponential rise.

    One way to play it is through the March 24 PUTS. But you have to place a limit and hope to be filled.

    http://www.m-x.ca/nego_cotes_en.php?symbol=hnd&image.x=0&image.y=0#cote

    • 1mh0tep

      @Bart

      Yes, you’re right but not enough volume i think. Very few options are good ideas in Montreal because of very wide spreads and very low volume … unfortunately.

  41. Robert

    One service I subscribe to had called for a drop in NG to around $2.30. Should that area hold as a bottom, does anyone have opinions as to what type of price action we might see here i.e. -rallies capped by trapped longs who were waiting for any little retracement to sell into?

  42. Bart

    Unreal…. NG now at 2.26. Good time to just stay on the sidelines and watch the action.

  43. David

    I might roll the dice (again) with NG futures if it double bottoms at 2.25 again, but I am somewhat reluctant because of what idiotic said in post 51 about cycle low behavior (post 2000) tending to favor Aug/Sep.

  44. Bart

    That 10 bagger opp was last night…

  45. Would have been good idea to buy just one put option in case NG went exactly opposite our original bet. Just looking at the 25 year monthly chart, it looks quite possible that we get +/- 6 months near the low with maybe a weak bounce followed by a double bottom later this year (Aug/Sep as noted by idiotic?). This was already a busted play as of a few weeks ago like I noted and unless something major happens during the next several months I don’t expect any great speculative opps to arise.

  46. David

    I made a little bit of quick money today on NG. I wonder when it will turn up in earnest? I think it will take some type of coordination by producers to scale back production, and then it will be at $5 again very rapidly.

    • Robert

      @David

      FWIW- I have seen a possibility of $1.76 natural gas put out there by a technical analyst whom I greatly respect. He called the turn around $2.30. I am (over) loaded to the gills with gas so I am personally not saying to give anything one person predicts too much weight but as for me I’m not too sure the recent lows will hold. It would be interesting to see what Eidetic(idiotic) sees on the charts.

    • idiotic

      @Robert

      First of all, from our December 7 post above we quote,

      “Unless the market reverts to its pre-2000 behavior, the chances for a major cycle low during January – February 2012 are slim but an intra-cycle low that might give a $1 or $2 kick is still a possibility. More probably the August-September 2012 time frame will favor the establishment of a major trading low. If you’re looking for a giant-killer price advance, that’s the scenario you should be wishing for.”

      As regards current market activity, spot month yesterday traded to a new low at $2.204. We consider longer-term monthly chart support to begin below $2.14. Monthly stochastic readings continue to decline (Slow%D = 17) into “oversold” territory but are still above the 2009 low readings when prices were relatively higher. Thus, an unconfirmed bullish momentum divergence exists. That is not pertinent but it does imply bottoming potential further out in time. Our guess is that it would take literally a price washout below $1.50 to nullify that divergence.

      Weekly stochastic readings are also declining and below 20 so also are in “oversold” territory. Although the indicator is going south current values are above their January lows when prices were higher and the January lows are above the lows of last October when prices were even higher. We don’t know if you can visualize that but essentially there’s potential for a progressive bullish divergence on the weekly chart: lower price lows in Oct/Jan/now versus higher indicator lows in the same time frame. It would take at least a couple weeks of sideways-to-higher price action to work in favor of an upturn in the stochastic picture.

      The daily continuation chart yesterday featured an “outside” range bottom reversal session and the daily stochastic indicator turned up (%D = 13.19 on Monday so well into “oversold” territory) to confirm a bullish divergence versus the January low. The spot month low in January was at $2.231 in a very large range “outside” range bottom reversal session, so you can see that the market’s at least groping for at least a short-term low here near $2.20.

      January – March price action formed a small triangle from which prices broke down last week. There was a daily gap on the breakdown day and current price/momentum action suggests that the market could bounce back into the gap in an attempt to nullify this last minor down leg. The gap is at $2.441 – 2.484 basis spot month.

      We don’t have access to seasonal data anymore so don’t have an up to date database but it used to be that the energy complex was very consistent about making a seasonal low in March – April then advancing to an October, or later, high. The petroleum components are not following that scenario this year. Instead they are in an intermediate-term contra-seasonal advance from last October’s low. Therefore, we don’t know if NG can get a seasonal bid in March-April given the atypical movement in the petrocomplex.

      Overall, there is some reason to consider a high risk countertrend short-term stance on the long side now but intermediate- and long-term technical factors don’t corroborate that. We would rather look at long side potential in late summer even if it means dealing with prices that are above those currently trading.

    • @idiotic

      Thank you, that was an extremely thorough, comprehensive and excellent update of the macro technical view!

    • David

      @silverax

      Yes, thank you very much idiotic.

    • Robert

      @idiotic

      Thank you for taking the time to share your chart interpretations.

  47. Dave

    Anyone else not seeing the “Comments” list updating, and with stuck time-stamps?
    Idiotic’s comment (above) is missing and the last comment is “1 second ago” by 1mh0tep on Montveil, Jockular is also at 1 second ago, but actually both are from much earlier.

    • Dave

      @Dave

      Ah, maybe not missing, but another time-stamp error situation? Shall we all go Julian?

  48. Bruce

    Yes, I have been viewing the same problems with the time stamp. I am using Firefox browser – if that helps any.

    • 1mh0tep

      @Bruce

      Same problem for me with firefox AND IE8

    • @1mh0tep

      Time stamp and date issues should be hopefully fixed now … may have been related to some server settings that were not properly updating the system clock..

  49. David

    Buying the dip again this morning at 2.080 April futures contract. One of these days the knife will stop falling, but if not yet then perhaps a 30 cent bounce from here if lucky. The weekly EIA inventory report (Thurs) is often a bad day for NG, so it might be best to wait for another spike down this week.

    • Robert

      @David

      That knife has sliced off all my vital appendages so I had to use my nose to hit the buy button on a May 2.4 call.

    • @David

      If crude falls (and it should, at some point) there would be some energy sector headwinds in NG even if a bottom is being completed. I don’t want to play a small move with options during the wrong seasonal (at this level probably makes more sense to buy a long dated futures contract and sit on it … NG is probably not going to a dollar). I want to look for spike opportunities or at least some seasonal type support. As Eidetic has noted, important lows tend to made in NG during the months bracketing summer.. Even if price is higher in a few months the timing would arguably be more supportive for a speculative play at that point.

  50. Robert

    I am trying to better educate myself on all matters Natural Gas. Not simply from an investment perspective but rather from the idea that it is an important fuel that seems to be destined to only increase in importance. Unfortunately, I no longer seem to possess the mental faculties to separate the garbage analysis from the legitimate. I would welcome any suggestions from the forum as to recommended sites/forums/articles from which I can learn. And I certainly would welcome from Silverax and Zurbo the kind of discourse on the ins and outs of natural gas that they have hitherto provided on the precious metals and shares. I have a sneaking suspicion that others in this forum would benefit.

    • Tweetie

      @Robert

      I’m afraid that you’ll have to pan out all the analysis for yourself to find out where the gold is. Mostly the differences in views lie in probabilities and time horizons.

      A site on energy I’ve always liked myself is gregor.us . And of course the dept of energy at http://www.doe.gov. See for instance “Coal’s share of total U.S. electricity generation falls below 40% in November and December” at http://www.eia.gov/todayinenergy/detail.cfm?id=5331

      Just read a lot of articles and draw your own conclusions.

    • @Robert

      For us it is a matter of having the time — I do quite a bit of research on the side and will try to present some of my findings in the future as NG clearly has a potential to be a major investment opportunity in many different forms during the coming years. An interesting situation is perhaps getting tee’d up in the near future if some wells are shut in and drill plays abandoned at these absurdly low North Am nat. gas prices.

    • Bart

      @silverax

      Make sure to divulge in a timely matter :) :)

  51. forwill

    On the topic of energy, check out what the nutbag President and friends in Argentina are up to. It’s time to avoid any invesments in Argentina. Give Spain a nice kick while they’re down.

    http://www.bloomberg.com/news/2012-04-17/argentina-seizes-51-of-oil-producer-ypf-to-stem-imports.html

    • kjm

      @forwill

      Argentina was already a tough place for oil companies from a fiscal point of view.

      Much better returns in Columbia and Brazil.

  52. Bart

    Timely manner… long day

  53. Tweetie

    Nice NG article from Soberlook: http://soberlook.com/2012/04/natural-gas-production-has-stabilized.html

    Conclusions:
    * since december production is no longer growing
    * but production is still up +9% year on year
    * and way above 5 year average

  54. Robert

    I never would have imagined just two weeks ago that I would be GLAD that I was carrying so much NG but that has been the case as it has allowed to to pick up more miners at these prices. I am anxious to read your gas play that hopefully is still getting “tee’d up”. Human nature I guess that there are many posts regarding gas when it is dropping like a stone but nothing since it has rallied 10-15%. Or is everyone afraid to jinx our good fortune?

    • kjm

      @Robert

      Just don’t expect it to rally too far Robert, there’s still a big surplus out there. Glad you made some coin off it though.

    • Damon

      @kjm

      It’s managed to close fractionally over the 50-day moving average for the first time in ages after a 5-day battle to get there.

      If there’s any momentum left in this rally (who knows? the last daily candle looks a bit toppy) it might run up to the 2.75-3.00 range. Funny that NG is running counter-trend to GC, SI, HG, and CL too. It really does march to the beat of its own drummer.

  55. Robert
  56. Bart

    Buying some cheap /NG PUTS might be a good idea here. This move seems to be close to a top. Could be decent drop even down to $2.

  57. Tweetie

    Big surprise today in NG markets. A decline in NG in storage instead of the expected increase.

    Price jumped 0.34 or 15% to 2.52 as a result of shortcovering. This may be the long expected turn.

    See for instance this article: http://soberlook.com/2012/06/natural-gas-storage-surprise-prompted.html

  58. Robert

    http://www.reuters.com/article/2012/08/09/usa-hurricanes-forecast-idUSL2E8J96ZD20120809

    Seems a little early for the expected seasonal decline of NG prices. Interested in Eidetic’s view as well as Tom’s on the current state of the market and the recent ?topping? price action.

    • idiotic

      @Robert

      The rally from the Apr 2012 low at $1.902, basis the nearby NYMEX futures, has a high to date at $3.277 on July 31. So far the rally consists of 3 swings (envision a-b-c) and it looks like a typical countertrend correction. The c-swing is 1.29 times the distance of the a-swing. Since the reciprocal of 1.27 is a swing-related .786, the rally structure suggests that it may be completed. In that context, the weekly 14-period stochastic indicator turned down from an “overbought” high at 82 (%D value) the week ended August 3. The weekly chart established a top reversal then also. The combined price/momentum indicator action imply at least a pending multi-week period of defensive price action; weekly stochastic downturns in this market from above 80 rarely prove to be whipsaws and the whipsaw occasions nearly all occurred during primary uptrends – which is the opposite of current intermediate- and long-term term trend conditions.

      Whether or not this year’s low is a major one remains to be seen but there has only been one interim price low in April (2010) and never a major price low during April since futures trading began in 1990. Historically, price lows in the second half of the year occur most frequently in September so let’s see what happens in the next 6 weeks.

    • Robert

      @idiotic

      Thank you.

  59. Robert

    It looks like the $2.68 level is the area where prices need to stay above. Lots of wild swings up from there and then back down. Great for trading.

  60. Tweetie

    Some background:

    “The pace of natural gas drilling in Pennsylvania is slowing, according to data from the Pennsylvania Department of Environmental Protection (DEP).

    DEP reports that the number of natural gas wells started per month in 2012 remained fairly steady through April, but has since declined sharply. This holds particularly true for horizontal wells, which in Pennsylvania have significantly outnumbered non-horizontal (vertical) wells since 2010. ………..On average, 5 horizontal natural gas wells were started each day in 2011. In 2012, the new horizontal well count generally remained above 4 per day through April, but has fallen steadily thereafter. In July 2012, operators began drilling, on average, only 2.5 horizontal natural gas wells each day.”

    This probably is a trend in the whole USA. Since horizontal wells have sharp decline rates I think the effect on production will be noticeable very soon.

  61. The NG chart is telling us that indeed we could see a seasonal low in September. Even tropical storm Isaac which is now heading toward the oil/NG area of the gulf is not affecting prices so the seasonal trend appears to be affirmed. The question is, do we get a strong bottom and a sustained rally back up toward “fair value” in NG (arguably $4-5+) or more sideways action. Longer term I do see the possibility of a slowdown, even if temporary, in new shale gas well having an impact on prices but for this winter I would think the severity of cold weather will be the main driver of the market. Depending on where we are in September it could still be another interesting speculation in call options (the leverage is tremendous so we could easily play this several more times unsuccessfully and still have it be worth the effort).

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