Congrats so far on a good call TJC!

Looks like additional short covering, as now new highs on the day.

TJC,

A gap above 3.140 on the open Sunday Night, that holds would be a huge island gap reversal on the charts. ............leaving behind the trading of the past couple weeks below that. 

Unless we fill the gap here suddenly with a huge afternoon surge up to 3.278 which seems extraordinarily unlikely since storage has caught up so much vs last year.

So the big gap above is from 3.140 to 3.278 vs the Feb Natural Gas contract.

We are current just below 3.1, after a high of 3.11 so far with additional cold on morning model updates to add to increasing cold on overnight weather models.

Like last Friday, that featured strong prices on added cold in similar fashion and indicators being for even more cold..............it can turn milder again over the weekend.

Last Sunday Night featured a sharply lower open. I doubt that will happen this time but am just mentioning it to make this a two sided, objective discussion.

Also, one should note that some of the huge speculators may be interested in using strength as opportunities to go short in a market that may have an oversupply as 2019 goes on.

If the extremely frigid pattern advertised for a long time, coming up later this month fades or does not last very long, ng will collapse to new lows.

 With this being a weak El Nino, the odds favor the cold being for real for late Jan onward since they tend to be backloaded with cold. Also, many of the coldest E US winters on record were weak to low end moderate El Ninos: 1884-5, 1885-6, 1904-5, 1913-4, 1939-40, 1963-4, 1968-9, 1969-70, 1976-7, and 1977-8. That's quite a list! That is THE coldest ENSO phase for the E US including the SE (ON AVERAGE).

European model guidance early this afternoon came out MUCH colder!

MetMike

Thank you for the updates!

Obviously, shorts are deserting their positions as new highs continue this late afternoon.

TOTALLY agree that this rally will NOT approach the prior highs!   Looking for 32-50% retracement, and then may reverse with puts.

Have you, likewise, caught this move?

Yes, am nervously long holding a tiny position over a weekend for the first time in a long while.

Looks like 9 daily trading bars in the island from Dec 31 to today, Jan 11. We actually filled part of the gap with this afternoon's rally. 

So the bottom of the gap is today's high at 3.166. Previously, it was 3.140 from Dec. 31 but we eroded/filled a small portion of it late today.  The top of the gap from the Dec. 28 low of 3.278.  

The last run of the GFS was colder and the GFS ensembles were a bit milder at the end of week 1 but colder in week 2, which I think is the period that is going to matter the most. What will matter is if the models continue this cold or colder for 2 more days, then we would get the gap higher on Sunday Night and leave the island behind. 

The weather can change of course and if we are milder or this frigid pattern change fades, we can go lower pretty easily. 

Closing comments from Natural Gas Intelligence:

Forecasts for January Cold BlastReply Lift Natural Gas Futures; East Coast Cash Slides

     5:56 PM    

With major weather models Friday continuing to show a shift to colder temperatures for key markets later this month, natural gas futures rallied sharply to set up a potentially pivotal weekend for prices. In the spot market, East Coast points eased off after recent weather-driven gains as prices remained steady across most other regions; the NGI Spot Gas National Avg.slumped 17.0 cents to $3.005/MMBtu.

Mike,

 Do you think lows are in for season? My guess is that both highs and lows are in.

Larry,

It seems almost impossible for us to get near $5 and new highs as that would probably require record cold from late January thru March and storage well below 1 TCF. 

I could see new lows if this cold only lasts for a week or even 2 weeks but not as frigid as the pattern favors right now and is followed by a return to the very mild pattern that we had recently......that continues well into March, especially if we had a couple of weeks with very small drawdowns in February. I'm thinking that the large specs will be very willing to push the selling petal to the metal on bearish weather for natural gas because the supply fundamentals are pretty bearish.  

Seasonals turn strongly up in March though.

However, 

Like you, I see  lot of strong indicators favoring enough cold during the next month that, if it verifies will take storage low enough to lessen the risk of new lows to small........if it verifies.

 Based on today’s 12Z models vs 12Z yesterday, bulls should be currently feeling good since they are even colder for the 2 week period overall. The feeling good for the bulls is even taking into account the strong buying that too place late yesterday after the colder Euro suite. 

 Mike do you agree as of now anyway?

Larry,

I agree but things could change. 

I think that if models look similar to yesterday, but the intense cold is 2 days closer, we should be higher just from that............as long as that same cold defines a new/pattern change that shows no sign of ending.

The 0z GFS coming out right now is a bit colder in a week than the previous runs but then quite a bit milder in week 2...........until the end of week 2, when the southern edge of the polar vortex drops down to the Upper Great Lakes/Northeast. 

The operational model runs are having huge timing changes, while the ensembles have the main long wave pattern features in place, sustained  and the timing thing is averaged out.

It's possible in this type of regime, that the models suddenly catch on to Pacific flow being more dominant  and deflecting the northern stream back into Canada, which would result in the forecast going from frigid to mild in a large area quickly.

edit, 11:55pm : I didn't word that right. It should say that this is the thing to be looking for in the current regime that would turn things bearish again in natural gas. 

With the last solution of the GFS ensembles just out, just the opposite is happening as the coldest maps are those at the end of week 2, when the polar vortex plunges into S.Canada.

The just out 0z Canadian ensembles is about the same............widespread, very cold temps at the end of week 2 and possibly beyond.

360h GZ 500 forecast valid on Jan 27, 2019 00UTC

Forecasts for global GEM, control (GEM 0) and the 20 ensemble members

Larry and TJC and others,

Am interested in your latest takes on narural gas.

  Good morning, MetMike and KC FORUM

  1.  I believe we have caught a counter trend, snap back move.  It will be contained by the .32 (3.48) or .50 fib (3.76).  It will be short lived, probably done tu/wed/thur.

  2.  IF, IF NG gaps, we can then measure for a projected high.  Right now, add .26 to Monday low.  I project 3.24 + .26 = 3.50 = 32%ish = I am gone, especially if achieved on tu/wed/thur unless the weather becomes cold(er) LONGER.  In any event I am gone 3.73ish.

  3.  The last daily low was 12-17-18, 45 days from the previous daily low.  Next projected daily low is in the last week of January.  Trend is down.  

  4.  I will be looking to cash calls, buy puts for a drop to the next daily cycle low.  NOTE:  Feb Option expiration is 28th---contract expiration 29th!

  5.  Perhaps I am 'thinking' too symmetrical--plays out too well??

Please double check my methodology.

Now a question for you.  I know there are many private weather forecasters.  But what are the TIMES for gov long range reports?  The privates will try to anticipate, but reactions will come at gov release times, which are when?

Wonderful analysis tjc, thanks much!

On the release of weather models, they come out all day long at different times.

The operational GFS comes out 4 times a day and takes around 45 minutes to be released. This is followed by the GFS Ensembles that also comes out 4 times a day and takes  a bit less than that.

As important is the release of the European model that comes out over an hour after that, coming out 2 times a day, followed by the European model ensembles.  Again they take less than an hour to come out.

The Canadian ensembles also come out 2 times a day at around the same time as the GFS Operational model. 

So models come out between 10a to 2pm, then 4p-5:45p, then 10p-2a, then 4a-5:45p. Basically half the day.

MetMike

Sooo...next big timeframe is 5pm tonight, correct?

5pm. That's when natural gas opens and dials in 2 days worth of weather models and changes all at once, often with an over reaction.

The actual GFS that came out just before then does not count as much because all the other runs of all the other models have not been traded.

For instance, if I was long natural gas on the close Friday because of extreme cold coming and the models turned milder over the weekend, I would want out, maybe at the market........any price.

If I was flat over the weekend, I might want to get short but maybe not "at any price".

And vice versa. If the models confirm the cold coming but we are 2 days closer, there may be those that may not want to be long here but they have spent the last 2 days thinking about why they wish they were not short...............so they buy the open aggressively to go flat. 

Mike said: "Larry and TJC and others,

Am interested in your latest takes on natural gas."

-------------------------------------

 No doubt to me significantly higher. I'll try to give more HDD analysis later, but we're easily colder than we were on Fri 12Z. By the way, I'm flat as usual. So, I'm not talking my book. What I am talking is the reality of the modeled very cold wx for late month.

---------------------------------

Edit: 12Z Sun GEFS for 1/14-1/26 is 7 HDD colder than the 12Z Fri GEFS plus it still looks quite cold 1/27-9. I'll try to get something out on the 12Z EPS comparison later after it comes out.

Thanks Larry.  We look forward to it.

Since I am slightly long, I actually have the opposite bias, strangely enough.

Maybe this is practicing the authentic scientific method?

I spend much more time looking at solutions skeptically and thinking about why I might be wrong. If I was flat, I would be focusing more on why I should have been long.

For instance, when we have a warmer model solution vs the previous one, I will be looking at the small picture and think "oh, oh, this model might be on to something and we are turning warmer now"..............even while the big picture is for a turn to widespread, long lasting cold. 

 You're welcome. Mike.

12Z Eur ens: +12 HDD vs Fri 12Z run for 1/14-25 plus it still looks cold 1/26-8.

12Z GEFS as mentioned earlier: +7 HDD 1/14-26 plus solid cold 1/27-9.

 I see nothing bearish the market wxwise whatsoever vs Fri. The mkt should open up strongly even with the strong finish Fri if it acts logically though I realize nothing is certain with markets.

I covered at 3.330. The GFS guidance for 18z is coming out milder and I'm not going to be greedy on the expected panic buying gap higher open.

NG opened up sharply (not surprisingly) up 22+ cents vs the Fri close and almost 17 cents above vs the last Fri trade.

Congrats Mike and TJC!

  Cashed in my call.   Had to wait until 5:18 to get a bid ask.

  300 call out at 330 from 1290 purchase

May look to rebuy different strike on a dip to 324 level

The GFS ensemble  average 18z solution was pretty close to the previous one..... after the milder operational model came out earlier.

Operational models will have wild run to run swings of course.

On the ensemble average solution, its taking on a more zonal look with the cold peaking last night before midnight with the 0z run.

I don't think the market will swing 2,000/contract on changes in models like it did in late November and this gap higher, leaving the island gap we've been discussing since late late last week is a potentially very powerful technical signal..........which, along with the latest big picture on the colder weather models looks bullish. 

Leaving a 9 day trading island behind........very bullish.

If the gap gets filled at some point, its a gap and crap failure of the signal.

Congrats tjc!

I hope me getting out didn't influence your decision, especially if we keep going higher here.

MetMike

The gap was very much more than I anticipated, which usually is a warning.  Moreover, I thought NG would retrace.  Now looks like it is firming.  Lot of time!!

Will be observant for retrace AND the fib retracements

(Did you get my email?)

Thanks TJC,

I just looked and saw your email. I'm trying to keep track of too much to also try to read emails in timely fashion.

If the maps overnight turn even colder, I might try to buy again.

Am looking at a possible bean short here too based on the weather pattern in SA turning bearish.

Possible long in wheat if sub zero cold was to hit the wheat belt and possible long in oj if the cold managed to penetrate deeply into Florida.

I will monitor 325 for possible rally to the 340/345 level.  Looking to short (puts) near 345.

Respectfully disagree on shorting beans.  Bot call on Thursday near low.  Believe we are in third week of second 3-5 week rally in beans.  Target 960.  907 a buy

Would like to buy OJ on a Monday dip near 118, thus completing daily and weekly low cycle.  ( Friday could have been said low)

Buy CT on dip.  KC should rally.  Wheat good buy on minor dip to say 509

tjc,

The market is making us look like a couple of geniuses (-:

ngg making new lows at 3.285.

Just a reminder, the gap higher, starts from Friday's high of 3.166(the bottom of the gap) up to the low so far this evening, 3.281(the new bottom of the gap tonight)

If we fill that gap, it will likely be pretty bearish and likely because the models are backing off more on the extreme cold coming up later this month.

This is known as a gap and crap or an exhaustion(panic-at the market type orders) in the buying(up move) or selling (down move) with no follow thru of buying/selling. 

The gap here, coinciding with the gap lower at the end of December has left 9 days of trading below which is an island. 

3.252 on 12-26 and  3.278 on 12-28  were the daily lows before the gap lower on December 31st.

Those prices might be some decent support but I don't think the market is trading technicals as much as it is weather right now.

If the maps turn colder again overnight(the 0z GFS ensembles were incredibly cold, coming out just before midnight) then we probably can go higher.

I have noted some models and ensemble members turning less cold however, in the last few runs.  If that catches on with the majority, then the spike higher tonight might have been the high.

Wow NG is up over 42 cents! I sure hope we’re not returning to the insanity of Nov/Dec with the large entities and their disruptive and dominating algos and that the market remains more orderly. The huge ups and downs of Nov/Dec were ridiculous overreactions.

Larry

Does current/revised weather "justify" these new highs on the day, OR momentum 'players' at work?

tjc,

 I'd say that the steep opening gap higher was fully justified by much colder wx, especially with prices still relatively low on Fri vs the high 4's of mid to late Nov. However, little has changed overall in the model consensus' 2 week HDD guidance since yesterday at 12Z. Make no mistake about it is still widespread cold looking overall out two weeks. So, there's nothing bearish wxwise right now. But it is hardly colder looking than it was at yesterday's open (though we're now out a day further and it still looks cold). So, I'd call the rise since then mainly momentum.

The last run of the GFS and ensembles was incredibly bullish.

NGI:

Weekend Cold Shift Seen ‘Incredibly Bullish’ as Natural Gas Futures Surge Higher

Here's why I'm saying that the further steep rise since yesterday's very steep open isn't justified on colder wx models, themselves:

12Z Mon GEFS for 1/15-28: 428 HDD

12Z Sun GEFS for 1/15-28: 425 HDD

So, just a 3 HDD increase.

0Z Mon EPS for 1/14-27: 412 HDD

12Z Sun EPS for 1/14-27: 409 HDD

So, again, just a 3 HDD increase.

 But NG is up some 17 cents above the open. Is that justified strictly by just 3 more HDDs? Of course not. But there are other wx factors such as actual pro met forecasts being more than 3 HDD colder than yesterday's forecast due to them not going directly by model output. Keep in mind that models are just that, models. They are far from perfect and can sometimes be way off. So, forecasters don't just use raw model output. Example: Radiant, who had been keeping their 6-15 day outlooks quite a bit warmer than the model consensus due to previous warm bias of model consensus. Whereas their Sunday forecast was still a good bit warmer than them, this morning's was adjusted much closer to the model output. Result: today's forecast was much colder than yesterday's. Hence, an added push up to NG. Another more subtle thing to consider is that the models still look cold and they go out a day later vs yesterday's runs at the end of week 2.

 Also, momentum players/algos have likely piled on today in what some may consider an overreaction. But make no mistake about it, it is hard to find a bearish aspect of the wx right now.

Outstanding points Larry, all of them explain exactly whats going on right now.

I agree that its not always the change in HDD that matters the most, especially when we have a big pattern change coming up.

With a pattern change to something extreme like this, the models usually UNDER predict the magnitude of the later period anomalies..at least the ensembles do. 

Climo gets averaged in more in the late periods I believe, so this averages down the extremes.

So can a couple of outliers in the opposite/wrong direction late in week 2. 

Operational models will have wild gyrations/swings that are not reliable in week 2 at times. 

NG being up 4,000/contract is a bit much here compared to the price on Friday at this time, especially because we had a similar type forecast, just not as extreme or as cold.

However, this pattern change to frigid weather has been in the forecast since late December, in some forecasts, since mid December, when they were advertising bitter cold kicking in around New Years day.

This went on for day after day, then for several weeks and the cold just kept getting postponed..................by several weeks. 

Late last week, it was the same story. "Frigid weather pattern change coming up............but not until well into week 2" which meant LATE January.

But then, it seems like all of a sudden the cold starting getting much closer and increasing, instead of decreasing and being postponed. 

So part of this rally,  maybe should have taken place last week if the market did not have the "boy that cried wolf"..............."meteorologist that cried cold" mentality.

The buying on Friday Afternoon(sustained and with the buyers hitting the offers much of the time vs waiting for a pull back or picking a price), reaching new highs told us that the market was bracing for this finally.

  Thank you, Larry.  Very good summary.

  Does not look like a break down today, but any hint of a shortened period of cold will make for a tumble.

Here was the latest weather from earlier today for natural gas trading :

https://www.marketforum.com/forum/topic/21669/

I thought the operational GFS couldn't get much colder but the last one, the 18z GFS is much colder and now, really can't get too much colder.

Here's the closing comments from Natural Gas Intelligence:

Growing Confidence in Frigid January Finish Prompts Big Rally for NatGas Futures, Cash

     5:44 PM    

A resounding cold shift in forecasts sent natural gas futures racing higher Monday, with models offering more clarity on the likelihood that frigid temperatures will drive much stronger national demand for the final third of January. Physical markets followed suit with widespread double-digit gains in anticipation of a frigid finish for the month; the NGI Spot Gas National Avg. surged 56.0 cents to $3.565/MMBtu.