Algorithms (machines) from large entities are controlling a lot of the trades these days for this and other markets. The trades don't necessarily have to make sense from a demand or supply standpoint.

 Have you noticed for most markets how when you just place a bid or offer how other bids/offers jump in front instantly? Or when you buy or sell how that often triggers a move in the opposite direction instantly? Those are obviously machine driven. Markets aren't the same anymore. Electronic trading has hurt in the allowance of machines to control.

The market is entirely focused on the pattern change to much colder at the end of week 2.

It seemed to be threatened by this on Friday but over the weekend, end of week 2 maps have turned even colder:

https://www.marketforum.com/forum/topic/19206/

If the models change the end of week 2, much colder solutions to milder at any point the next couple of days, this will be seen as a great place to short........and tonights gap higher, will be a gap and crap......failure that goes in the other direction. 

If they keep getting colder and the cold gets closer..........then the gap higher this evening could  be a breakaway gap from a bull flag. 

I did see your posts about that earlier.   For my part it was 17 in my nekka da woods this morning.  NE Ohio.  That is as cold a day in December that I can remember for quite a while

Mike,

 I don't think this market is paying much attention to wx for any timeframe these days other than for some herky-jerky quick moves up or down. It just has a bull slant, period. It (largely due to bullish algorithms) is largely focused on the low storage and nothing will stand in its way whether it be higher production, warmer wx, etc.

 And fwiw, extended climate models (which I don't think have credibility as you know) are largely warm. I'm bringing this up because you're talking about colder end of week 2 models and you sometimes bring up these week 3+ models. For example, the last Euro weeklies run (Thu) was warmer than the prior run and was warm dominated with no cold weeks and the coldest being near normal. The latest CFS runs are warm dominated after week 1. If you decide to short at some point, be very careful. Of course, any position is always risky. So if you go long, be very careful, too. Maybe flat is the best position!

Larry,

I agree that low storage is the biggest factor. This is exactly the environment that causes the market to be extra sensitive reacting to maps at the end of week 2 and beyond that show a PATTERN CHANGE to much colder.

The long range European model was mild on Thursday as you said..........as I mentioned Monday, I don't believe this product has much skill but the market spiked higher on it being real cold for a sustained period in late Dec/early Janon Monday because the market WILL trade the bullish potential of sustained cold at an extended period when storage is this low.

On Friday, we were higher from the threat of late week 2 maps, some-Canadian ensembles already looking pretty cold-turning colder over the weekend, despite every NWS human forecasts all being warm thru the month.

The AO was much lower too on Friday. The milder Euro from Thursday didn't matte any more on Friday.

I have some confidence that if the models turn much milder overnight, that we will be lower than this on Monday.  Milder, as in going back to last Thursday or Wednesday's solutions.

With so many days of mild weather ahead of the cold pattern change, it's not certain that the current forecast can keep us up here........without getting colder.

Mike,

 If you decide to short at some point, you'd better hope the bullish algorithms lose control. Careful! Wx is not always the prime factor. Many market participants, machine or not, don't consider the weather models like you and others do.

And regarding the wx, I'll give you an exaggerated example to make a point: Days 1-12 mild, days 13-15 cold, weeks 3+ mild....only 3 cold days and the market may rise, regardless, due to bullish control by algos.

"And regarding the wx, I'll give you an exaggerated example to make a point: Days 1-12 mild, days 13-15 cold, weeks 3+ mild....only 3 cold days and the market may rise, regardless, due to bullish control by algos."

Larry,

You are missing the point entirely that I tried to make by capitalizing the letters in this post:

"I agree that low storage is the biggest factor. This is exactly the environment that causes the market to be extra sensitive reacting to maps at the end of week 2 and beyond that show a PATTERN CHANGE to much colder. "

If it was 3 days of cold days 13-15, then back to mild, then it would not be bullish.

Your weeks 3+ are from an entirely different unreliable source.........climate models.

Days 13-15 from the more reliable 2 week models.............all of them are getting colder and colder. They end at day 15 but you can bet that if they went a few days farther out, they would likely be even colder for days 16-18 based on the amplifying pattern change to colder.

When they agree on the same thing....in the same directions, they trump climate models for days 16-20 by a wide margin.  So the market is trading cold for days 16-20 not mild.

It doesn't make sense to go from below average and with an intensifying cold pattern change on day 15..............to mild on day 16.

Another way to put it.

Is the forecast warmer or colder than Friday?

Just look at my daily weather analysis, which I keep on there for a week so that this can be done.

We are colder. Hands down. I said that way before the open higher tonight.

The mild period coming up before that?

The market has known about that for numerous days. If you look back, we dropped $4,000/contract in the middle of last week. Why was that not the market trading and dialing in all this warmth?

It didn't get milder, it got colder since Thursday from what I can see(the much lower -AO was what got the attention on Friday but since then, all the models are colder at the end of week 2.............and beyond based on extrapolating the pattern change foreward.

Here it is:

GFS Ensembles:

Thursday:  Ridge sw Canada/trough east on minority, majority mild.

Friday: A few that are more favorable for cold air delivery into the US today. However, this is very uncertain.

Saturday: Similar to the last 2 days.

Sunday: Morphing in the colder direction but not nearly as cold as the Canadian ensembles, along with having several mild members.

Canadian

Thursday: Still huge disagreement between a few very cold members (that bring the northern stream back in with an amplified flow) and mild ones.

Friday: Not much change from yesterday.......though the natural gas market is acting threatened today by the potential for cold to return just after this time frame.

Saturday: Ridge Western Canada, trough East Coast couplet looking slightly more amplified, suggesting better chances for cold in the East/Southeast.

Sunday: Ridge West, trough east amplied even more.......very pronounced with good agreement. Strong northern stream and much colder with this solution.

AO/NAO

Thursday: Both AO and NAO near zero at the end of week 2. This lessens the risk of intense cold for the 2nd half of December.

Friday: The NAO is still around 0 at the end of 2 weeks but the noteworthy change is the AO plunging late in the period. This INCREASES the threat for intense cold to move south into the US in late December. Big spread, so low confidence in a forecast for that to happen.

Saturday: NAO now a bit positive and AO closer to zero.............decreasing threat for frigid weather in late December.

Sunday: AO slightly negative, NAO slightly positive.

https://www.marketforum.com/forum/topic/15793/

Mike, 

 Yes, I agree that the end of week 2 today, which is 12/23, is colder than the end of week 2 on Fri, which was 12/21. Truewx confirms this. So, this colder end of week 2 is due to progression as it obviously isn't an apples to apples comparison of the same day. Interestingly, 12/21 today, which is now day 12, is actually warmer than it was on Fri, when it was day 14, on the model consensus. 

 Before 12/23, today's 18Z GFS ensemble is, for example, actually on a day by day comparison of days 1-12 (through 12/21) 23 HDD warmer than was the Fri 12Z run per Truewx. Today's 12Z GEFS ens days 1-12 is 20 HDD warmer than the Fri 12Z GEFS. Are days 1-12, which have much more credibility than day 14, unimportant for energy usage?

Mike,

 From Truewx, HDD for Sun 18Z vs Fri 12Z GEFS:

Date...18Z Sun...12Z Fri (using rounded HDD)

10...…......27...…...27

11...………27...……27

12...……...24...…...24

13...……...22...…...21

14...……...22...…...22

15...……...22...…...23

16...………21...……24

17...……...21...……25

18...……...20...…...25

19...………19...…...24

20...………20...…...24

21...……...23...…...24

Sum...…..267...….290 (rounded after unrounded days summed)

So, today's 18Z GEFS is 23 HDD warmer for an apples to apples comparison of what was Friday's days 3-14 and is today's days 1-12. This is mainly due to a much warmer 12/16-20, which is bolded.

 By the way, the forecaster we've discussed is 11 HDD warmer than Fri.

You said: "Is the forecast today warmer or colder than Friday?"

 So, the forecast is warmer than Fri. A colder day 14 today (12/23) at 26 HDD consensus vs Fri's day 14 (12/21) at 23 HDD consensus does not make today's overall 2 week forecast colder. That's why I think NG isn't paying that much attention to wx these days.

" By the way, the forecaster we've discussed is 11 HDD warmer than Fri.

You said: "Is the forecast today warmer or colder than Friday?""

Again, its the PATTERN CHANGE. The forecast IS colder. Not the part that you think the market should be trading but the big picture forecast. 

The market traded the much warmer weather coming up last week and in my opinion, did not sell off as much as I thought it would but still dropped $4,000/contract from highs to lows based on dialing in the increasingly milder outlook.

So what's the bigger NEW news tonight.  Subtracting 11 or 20 HDD's from 290 total HDD's over a 2 week period, or a pattern change to much colder that could potentially deliver triple that amount of extra heating degree days compared to expectations in late Dec/early Jan. This is much colder in my opinion. 

The market is sharply higher and I showed you my comments in the weather posts BEFORE the market was sharply higher, going back to Thursday already.

A week ago, you questioned why I use the late week 2 maps in the weather thread.

This is why. 

Mike,

  You asked if the forecast is warmer or colder? It is warmer for weeks 1-2 overall. You didn't ask me whether or not a colder pattern change is showing up on late week 2. I agree it is. But the late week 2 pattern change is much more speculative than the warmer days 1-12 forecast vs Fri. The problem I have with how you're stating this is that you're treating late week 2 pattern change as almost a done deal when you and I both know that late week 2 normally has the lowest chance of verifying in the two week forecast since it is further out. And if that pattern change doesn't materialize, then the projection of more cold in the period after that likely won't happen. And in the meantime, the 2 week forecast has gotten warmer.

 The market being sharply higher doesn't necessarily mean it is focusing on wx. NG isn't dominated by wx all the time. There are too many participants that don't follow that and there's a worry about low storage, regardless. I think it is up due to low storage regardless of wx, which for the 2 week forecast overall isn't cold and not near as cold vs normal as it has been. How do you even know it is up due to focusing on a potential colder pattern change late week 2?

Larry,

Although we are disagreeing on this subject, I respect your opinion a great deal.

Also, with regards to algorithm's I agree that this wreaks havoc on the market at times.

Another thing to consider too is that ng almost always over reacts. 

For instance, is ng at 4.3 last Thursday evening now worth 4.6 based on the changes in the HDD's and extended models?

Surely not because of the uncertainty of the extended vs the higher odds of the near term warming to verify. But ng is over reacting to the impressive PATTERN CHANGE to much colder in 2 weeks. 

The market is always right? 

I actually think that the market is always wrong. A speculator that knows how wrong it is makes their money from the market being wrong. 

Every day, often gets us closer to the true value of natural gas.........based on more information to ascertain the correct value(which is always changing)

"How do you even know it is up due to focusing on a potential colder pattern change late week 2?"

I don't pretend to be a God that knows everything. Maybe I'm wrong.  I presented my case with solid information from my daily weather posts that supports it strongly.

"NG isn't dominated by wx all the time."

This is true. However, it's December and historically, weather overwhelms all other market factors at this time of year.

With storage at 15 year lows,  the market is going to be extraordinarily sensitive to perceived changes in the weather forecast and over react to weather items that in most years, would not be as big of a deal.

And the over reactions will not coincide with a predictable time scale. 

For instance, one of the over reactions(to the much colder PATTERN CHANGE taking root in week 2-on models) could have been this evening(especially if maps overnight don't continue to amplify the extended cold).

We traded  4,400 contracts in the first 5 hours this evening. Early tomorrow morning, with the same weather maps, we could fill the gap and trade lower because the market decides to trade the 10 days of mild weather coming up and with 4 times the current volume during the day session, from the real big traders, who may have a different opinion than the smaller traders tonight.

Then, you can say that Monday's trading makes more sense based on your 2 weeks of HDD's and the extended, much colder being too far off to support this strong of a rally.

However, that doesn't negate what happened this evening and the reason for it.

In fact, this happens all the time, especially in the grains. The over night trade has a completely different take on where prices should be, then at 8:30 am, its like starting over and prices often act much different than they did overnight.

Personally, I would prefer to be short on overnight maps looking much less bullish at the end of week 2. Mainly because buying here, ahead of widespread mild weather and some tough resistance at last weeks highs(which we spiked above but are slightly below) carries tons of downside risk from the upcoming warmth. 

Last weeks high for ngf was 4.630. We spiked to 4.663 early this evening but have been drifting lower, now down to 4.607.

The lows were set shortly after the open at 4.577. There currently is a small gap between those lows and the highs on Friday of 4.570.

There is a decent chance of us filling that gap with the upcoming warmth. This would be a gap and crap technical failure, a sign that the panic type buying.......hitting the offers vs waiting for the price to come down was exhausted.

The charts look like a bull flag as we held the bottom part of the flag with last weeks lows. The top of the flag is defined by tonights highs.Violating that decisively to the upside is going to look like an upside break out from the bull flag.

However, the top of the flag also defines a downtrend from the contract highs a month ago at 4.964.

So we could go either way here. It's very possible that tonight highs and tough resistance, because of the mild upcoming weather forces us to trade farther down into the body of the flag, until the late month cold gets closer or looks more threatening.

If maps change and show this mild pattern going on for an additional week, I have high confidence that we will at least test last weeks lows and probably violate them in extreme fashion, possibly down close to $4, possibly even this week but only if models CHANGE and take out the late week 2 pattern change to colder threat. 

We can just as easily be close to the highs, and $5+ if the colder PATTERN CHANGE continues to amplify and features a dislodging of the polar vortex to a position unusually far south, towards S.Canada. 

Even if that is 2 weeks away. If the 3 main ensemble models have numerous members that show a polar vortex in our future, we will probably go to contract highs. 

Mike,

 Our respect for each other’s knowledge and each other’s character/integrity is what allows our fact-based discussions of various markets to be some of the best (imo of course) in the fundamentals category on this board. I think of these as robust discussions/debates rather than arguments/fights/juvenile name-calling, which is what dominates political boards here and elsewhere.