Commodities wiggled this week. It wasn't very exciting to watch but it still suggests paying attention. Crude oil closed above the 50 day moving average, but some corresponding ETF's didn't rally with oil. XOP in the bottom panel traded sideways all week and closed marginally above the 50 day ma. While oil had a nice uptrend, XLE actually closed slightly lower than last week. I still like the oil related trade setup here, but the tepid performance suggests watching closely for a better entry. This week didn't really motivate the buyers.
Natural Gas also wiggled on the week. It created a lower low and a lower high on the week but finished near the highs. Once again the $3.00 level hit last week, stalled the rally.
The chart below shows the closing price for Natural Gas for the last 5 years. There is some discussion about a fall rally into November. Part of the basis for that rally is hurricanes impacting supply and a transition from summer cooling to winter heating. Looking at the chart below, only two of the last five years saw a surge in Natural Gas prices. September is marked with arrows.
We know the winter months remove a lot more from storage. The chart below shows the current supply from the US Energy Information Administration. The chart shows Natural Gas being pumped into storage until November and then the high withdrawal levels in the winter months reduce the volume in storage. These big underground storage caverns allow the price peaks to be moderated. During troughs in demand producers push the product into the storage caverns. Currently the volume in storage is below the 5 year average for this time of year because the blue line (current) is below the five year minimum storage levels. The interesting part of the chart shows the US storage levels being below the five year average through most of 2018. With the increasing number of LNG terminals to export US gas, this could start to affect the price of Natural Gas going forward.
Canada has an obvious seasonality pattern too. Below are the futures prices for the next 5 years at the Alberta Hub. I want to show the difference that winter demand causes in futures prices out on the curve.
To sum up the situation, the US volume in storage has been below average for most of the year. We do enter a pronounced period of seasonal demand as temperatures drop. It is a matter of when that demand shows up. Every week we'll keep watching it, but currently the $3.00 level has been near the top of the range. If we were to have an early winter, or a more significant hurricane season we could see the price break above this $3.00 range.
A break above this $3.00 level might actually mark a meaningful change in pricing that we would want to be a part of should it occur. With the current storage 700 BCF below average and a couple hundred BCF below the 5 year low, the setup is there.
Here is the Commodities countdown video for the week. Bonds have an interesting setup this week. A failed breakout on TLT suggests paying attention.
Attached are some recent videos I have posted. The Final Bar mentioned some short term overbought signals and some alerting of concern on the transports. The various transport subindexes look like they are at the top of the range.
The Canadian Technician. While I was becoming more bullish when I recorded this on Monday, the Canadian market has since given back its breakout and is trading at fresh two week lows again...I would have to interject a note of caution on the failed breakout created. A false breakout is usually followed by a larger move in the other direction. The real problem is the Canadian market is back to prices we saw in June while the US markets are significantly higher.
If you are missing intermarket signals in the market, follow me on Twitter and check out my Vimeo Channel often. Bookmark it for easy access!
Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com
Author, Stock Charts for Dummies