On Tuesday, NYMEX April natural gas fell 5.2% to $2.355/MMbtu, which was 3.3 cnts above another 10 year low “target”. Prices have been hitting decade lows on the way down. So the new low was bait for the bears if you ever saw it. Yesterday the market opened at $2.34 and in 72 minutes fell to $2.28, or 6 cnts/MMbtu. I was in NYC speaking at the Morgan Stanley MLP conference and could hear screams from the street – “It’s the end of the world as we know it!” The market seemed to be gunning for $2.20 which would have blown through all sorts of technical supports and targets. Of course, it would also be consistent with the huge overhang in storage inventories that has been a frequent topic in RBN postings over the past few weeks.
But just about 10:20 eastern, somebody said “….And I feel fine.” Over the next 30 minutes or so April blasted back to almost $2.33. Talk about a whipsaw. The market spent the rest of the day cycling in a range, but generally drifting off to end at $2.302, the lowest price for a NYMEX Natgas close since February 25, 2002. Check out the one minute candle chart below.
Since I was in the City and had some time before my plane back to TX, it seemed like a good opportunity to head down to 77 Water Street which is the US home of the Updata folks. If you’ve been following this blog for a while, you know that one of my goals is to integrate technical and fundamental analysis for natural gas, crude oil and (hopefully) NGL markets – at least to the point where I can trade it without losing my posterior. Toward that goal I’ve been getting educated on the technical side of things by Willis Bennett at ecomenergy.com and the Updata team. Updata is the U.K. based brainchild of David Linton, that combines technical market analysis with a sophisticated software platform that lets you look at the trading patterns every way imaginable.
My question for the Updata technical analysts was simple. How do I know when the price for natural gas will crash below $1.999/MMbtu? The proverbial one-handle. That number must define the “End of the world as we know it”, right? After all, storage fundamentals indicate that it should have already happened. So it must be those darned technicians that are keeping the market afloat.
Here’s the short story from Updata -- “NatGas prices fell heavily last Thursday on the storage numbers. The 60 minute Candle-Volume chart shows the wider (ie more volume) red down candle on March 1st, which reflects this. But that move is not the big issue. The real problem is that we gapped down on Monday morning this week, falling through support after the market had some time to digest the news flow. We are now very close to testing the January low ($2.231 on Jan 23rd) and we would only need a few hours below that to be looking for a new floor for gas prices. Increasingly a long term recovery is looking off the cards.” The chart below lays out that case pretty clearly.
So there you have it. A few hours below $2.231/MMbtu. That’s the one I’ll be watching. Step down, step down.
And then the Updata folks added – “Keep an eye on the one minute Point and Figure price targets for signs of new price levels of very short term buying and selling thrusts.” Damn. Frankly, P&F charts give me a headache. But I’m supposed to be learning this stuff. And this charting technique does have the advantage of signaling target prices that can trigger trades. In this case the number on the .005 X 3 chart below is $2.26 See below. So now we’ve got two numbers to watch for -- $2.26 and then $2.23. Either way we are looking for downside signals that show the market is headed south, perhaps below $1.999/MMbtu.
One last chart. The following is the 60 minute, short term cloud chart, a.k.a. Ichimoku chart. This is an elgant charting technique that I’m trying to absorb as quikly as possible. I’m not about to try to explain the methodology today. Suffice to say that this chart says the natural gas market is in bad shape. “Katie bar the door”, as my grandmother used to say. The chart has indicated that the natural gas market has been in bad shape for months. And it will require a big price move upward into higher territory for the technicans would say it is back in good shape. Not likely to happen any time soon. Since that corresponds to my view of market fundamentals, and the charts look cool, I’ll be using this technique in my trading strategies.
In summary, technical analysis tells us that the market is within striking distance of price levels and triggers that could send prices over the edge – to the End of the World as We Know It. That is totally in sync with my beliefs about the fundamentals. But there is clearly an alternative view - a strong contingent of participants in the gas market who see the market in an oversold condition, poised for a strong recovery. The tension between this contingent and the rest of the market is responsible for the sawtooth trading pattern we’ve seen since the first of the year. I’m guessing that means we will see this saw-tooth pricing pattern all the way to the bottom, wherever that may be. That’s a great thing for many segments of the economy, including industrial gas consumers, commercials, homeowners and even NGL producers. It's the End of the World as We Know It, and I Feel Fine.
P.S. Looking for one-handles? Yesterday on ICE Cash, TETCO-ETX closed at $2.1155. Getting close.
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It's the End of the World as We Know It (And I Feel Fine) was released by R.E.M. on November 16, 1987 and appeared on their album “Document”.
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