Sunday, December 19, 2010

The Unusual Concentration in Natural Gas Continues

The concentrated money flows in natural gas (NG) flag continue to flag bullish tendencies despite the bearish supply reports. Connected and retail players have increased their net long positions into weakness; the retail long positions represent over 11% of the total open interest. This concentration is unusual as retail money as "chasers" tend to be on the wrong side of the trade at inflection points. A quick review of the money flows illustrates that trading tendencies common to other markets do not always apply to NG.

The heavy concentration of longs by connected players; nevertheless, warrants close attention. NG will most likely chop until the line of least resistance is established. The bearish supply reports, while contradicting the message from the leveraged market, have the specs plunging again. The spec short position at greater than 36% of open interest remains highest reading in nine years. In other words, the black boxes known for their tendency to race for a very small exit when “spooked” are aggressively short. This alone warrants a technial eye be placed on NG.

Natural Gas ETF and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Natural Gas ETF and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Headline: Natural gas falls further after inventories report

Natural-gas futures fell further Thursday after the U.S. government's weekly storage report showed a withdrawal from supplies that was slightly more than forecast. The Energy Information Administration said working gas in storage fell 164 billion cubic feet from the prior week. Analysts polled by Platts were looking for a reduction of between 159 and 163 billion cubic feet for the week ended Dec. 10. Natural gas for January delivery was down 13 cents, or 3.2%, for the session to $4.09 per million British thermal units. It had traded around $4.18 ahead of the report.

Source: marketwatch.com

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