November natural gas is expected to open a penny lower Tuesday morning at $3.91 as traders study ways to deal with a market that for the moment has no appreciable trend. Overnight oil markets resumed their plunge.
Sideways markets can be challenging. "Our primary trading theme remains one in which prices are apt to chop sideways through the rest of this month and possibly into next while staying confined to parameters of $3.80-4.20," said Jim Ritterbusch of Ritterbusch and Associates. "We continue to advise trading off of these parameters and would caution against attempts to enter the market from either side at levels just above [Monday's] highs.
"The fact that the market failed to test the summer lows of $3.79 along with some firming in the curve provided a minor supportive omen. But short of an extension of an expected Midwest cool-down across a broader portion of the U.S., we don't see significant ingredients for a sustainable price rally. And although Thursday's EIA [Energy Information Administration] injection will likely be downsized into double-digit territory, it should remain elevated in comparison with year-ago and five-year average builds. Meanwhile, we continue to favor deferred bull spreads within the 2015 portion of the curve such as long January-short July that could capitalize on a cold November," Ritterbusch said following Monday's trading.
Market technicians versed in Elliott Wave and retracement see both the bulls and the bears needing further price action to validate their case. "So far, ideal support at $3.793-3.787-3.771 is holding. The question now, can the bulls breach resistance? To signal the bulls are gaining the upper hand, 4.105 must be exceeded on a closing basis," said Brian LaRose, a market analyst with United ICAP. "Until and unless this can be accomplished, we have no reason to entertain a larger degree recovery. Meanwhile, bears still need to crack $3.711 (200 Week MA) to restore the down trend," he said in closing comments Monday.
Tom Saal at INTL FC Stone in Miami in his work with Market Profile is looking for the market to test Monday's value area at $3.899 to $3.871 before moving on and "eventually" testing $4.163 to $4.085. He notes that the November contract "continues its horizontal price action, the longer the horizontal the greater the chance for reversal to the upside.
"A trading opportunity is to trade the March '15/April '15 spread, aka the 'widow maker.' Buying the spread is a bullish strategy. Spreads are leverage plays because margin requirements are significantly less than with outage futures contracts," he said in a Tuesday morning note to clients.
In overnight Globex trading November crude oil cartwheeled lower by 97 cents to $84.77/bbl and November RBOB fell another 4 cents to $2.1846/gal.