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Further Nat Gas Losses Reaffirm Bear Count, Define New S-T Risk

Posted 07/29/2019 12:43PM CT | RJO Market Insights
Nat Gas Sep ’19 240 Min Chart

Fri and overnight’s continued losses reaffirm our bearish count discussed in 16-Jul’s Technical Blog following that day’s bearish divergence in momentum that stemmed late-Jun/early-Jul’s rally and exposed it as a 3-wave and thus corrective affair that warned of a resumption of Mar-Jun’s major downtrend that preceded it.  This latest spate of weakness leaves Thur’s 2.248 high in the now-prompt Sep contract in its wake as the latest smaller-degree corrective high this market is now minimally required to recoup to stem even the past couple weeks’ portion of the slide, let alone the broader bear.  Per such this 2.248 level is considered our new short-term risk parameter from which shorter-term traders traders with tighter risk profiles can objectively rebase and manage the risk of a still-advised bearish policy.

From a longer-term perspective, 10-Jul’s 2.476 larger-degree corrective high remains intact as our key long-term risk parameter this market needs to recover above to break the major downtrend and expose a base/reversal count that could be major in scope.  Until this market recovers above at least 2.248 and preferably 2.476, we anticipate a 5th-Wave resumption of the bear to levels potentially significantly below 20-Jun’s 2.115 low.

Nat Gas Sep ’19 Daily Chart
Nat Gas Sep ’19 Weekly Chart

We are certainly not in the business of trying to catch the falling knife, and herein lies the importance of the bear risk parameters we’ve identified above.  But moving out to a long-term perspective shown in the weekly (above) and monthly (below) log scale charts, it’s not hard to find a couple factors that are typical of major BASE/reversal conditions.  First, the market remains engaged with the lower-quarter of the price range that has dominated this market for the past 10 YEARS and cannot be ignored as a potentially very slippery slope for bears.  Secondly and not surprisingly, our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC has dropped to its lowest level in over 10 YEARS at 29%.

Such a degree to which the huddled masses are skewed to the bear side is typical of major base/reversal conditions.  However, traders are reminded that sentiment/contrary opinion is not an applicable technical tool in the absence of a confirmed bullish divergence in momentum of a scale sufficient to break the major downtrend.  Herein lies the crucial importance of 10-Jul’s 2.476 larger-degree corrective high and key risk parameter, the recovery above which, we believe, will lead to a major reversal higher.

Lastly and empirically, this market has showed in the past rare occasions to have little staying power down around $2.00-area levels of below.  For long-term players, the risk/reward merits of bullish exposure from 2.00 OB have been extraordinary.  We’re not suggesting putting bids in at 2.00 OB as we have a momentum tool to help navigate what would be an expected bottom “down there somewhere” more deftly.  But long-term players are advised to think about such a mindset in the months and perhaps even weeks ahead.

In sum, a bearish policy remains advised in the now-prompt Sep contract with minimum strength above 2.248 required to even defer the bear and warrant defensive steps by shorter-term traders with tighter risk profiles.  Longer-term players are OK to pare bearish exposure above 2.248 and incur whipsaw risk in exchange for larger nominal risk above 2.476, but commensurately larger-degree strength above 2.476 is required to negate our long-term bearish count and consider the transition to a new bullish policy.  In lieu of such strength above at least 2.248, further and possibly relatively steep losses below 2.115 are expected.

Nat Gas Monthly Chart

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