Gas Petrospective – October 11, 2010

Natural gas prices broke down below the major support at $3.61 on Friday, touched off a number of sell-stops at $3.59, and then turned to rally back above $3.61. Taken on this one trading day’s activity, we could say that prices have hit the sell-stops and may now no longer have any real reason to keep moving lower. If the $3.58 low holds, we would have a classic bear trap, which is something this (and other energy contracts) seem to love to give us.

Of course, it is equally possible that this was just a first foray into new low territory. We tend to be in the camp that believes we have a bear trap, based on oversold pressures, price levels, support levels and the inescapable truth that the northern winter is not all that far away – especially for futures traders.

In fact, one of the reasons cited for Friday’s rally from the day’s low was that colder temperatures will soon be coming. It has been unseasonably cold, especially at night, in southern New England and the North- Northeast this early autumn, but we are not yet sure we have returned to a colder-than-normal pattern. It is starting to feel that way, after having ended a year-and-a-half of colder-than-normal readings last March. From March through July, temperatures were substantially warmer than normal. Since August, they have been slowly becoming colder and colder. By early or mid-November, we should have a clear idea of what kind of temperature pattern we will have going into winter.

A great deal will still turn on the state of inventories moving forward through the autumn.

 Technical Recap

 NG Options Report

Premium Subscribers (click here to register):

Volumes & Open Interest

End Of Day Straddles

Trade Blotter

Settlements