The April Nymex contract made it five consecutive down days onFriday by virtue of its 1.2 cent loss to $2.129. Several tradersagreed Friday’s price action was a continuation of the 8.7 centdecline turned in on Thursday, coupled with some liquidation aheadof the weekend.
A broker noted that open interest increased by approximately4,000 contracts on Thursday, which he believes is the result of”aggressive” selling by funds. “They sold so aggressively that Iwouldn’t be surprised if they are now net short. If that’s thecase, you know what that means. Look out below,” he said,indicating a potential further erosion of prices.
A current potential negative technical indicator is the factthat April just turned in an outside week (marked by a higher highand a lower low price than the previous week) with a settle nearthe bottom of its range. However, another broker feels speculatorsmay not necessarily act on this bearish signal. “Two weeks ago,April had a high of $2.29 and a low of $2.15, with a settle at$2.198. The next week, April hit a high of $2.34 and a low of$2.17- a virtual outside week – and settled near the top of itsrange. This past week, April had another outside week with a highof $2.355 and a low of $2.105. You could argue April should havemoved higher a week ago but it didn’t. Therefore, you could argueApril won’t move lower this time. It all depends on the funds. Oncethey run out of bullets, the market should reverse itself.”
However, he is still wary of another downward fall because Aprilis so close to its next two support levels of $2.12 and $2.09. “IfApril falls below those prices, the market could spiral to $2.00,no problem.” He currently is recommending his customers buy optionsto hedge their April price exposure, before the current impliedvolatility of 35% rises enough to make options “too expensive.”
Now that the cash and futures markets have converged, a marketerfeels physical prices will determine April’s future direction. Ifso, April could be headed for further losses. Although a privatemeteorological service predicts significantly colder than normaltemperature in the Midwest next Tuesday and Wednesday, the 30-dayNational Weather Service forecast continues to call for abovenormal temperatures. “The key should be utilities. Right now, theyaren’t buying much, but if they begin terming up more gas in the$2.10 area (basis the screen) like they have done the last severaltimes prices moved this low, then cash prices could get a boost.Otherwise, a fall below $2.00 is entirely possible,” he argued.
If April is able to stave off a move below key support at $2.09,look for resistance at the failed $2.19 support level, a techniciansaid.
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