Nat Gas has been crushed over the past 13 trading sessions - Being that we live in the NYC area, and are freezing our ass off each time while walking the dog these days, we know there is lots of NG being used - so something isn't adding up.
The first thing I'll highlight anecdotally is that NG has had this recent habit of trending hard into the weekly close, and then gapping Sunday night in the opposite direction.
More importantly, there are extremes flashing that argue for a reversion to the mean. Lets take a look at the setup:
During the past 13 sessions NG has sold 64 cents.
Please click here:
This is our baseline actuarial table. Over the past 1,500 trading days, over a 15 trading day interval, a 64 cent selloff places us in the 94th percentile of all drawdowns. While this doesn't signal a reversal, we can see how extreme this selloff has been.
Next we want to look at the COT report from 12/5 - we will have 12/12 analytics loaded later this evening.
What we see is that Net Comm position score on 12/5 was a very strong 86% after the prior week's 21 cent selloff - Commercials were on the buy. Now, a little over a week later, price has sold off another 32 cents, and we believe that Commercials will have stepped up even more. If they were positioning long at 2.91, you can be sure they are eager buyers at 2.60.
So we anticipate the 18m RS score will be around 95% after tonight's report. Lets look at historical price distribution given a Commercial Net Position Score > 90%
You can see the 70th percentile move 20trading days out is 26.4 cents higher - Further Bull: Bear odds are 13:9, as drawdowns over the same period are only 18cents.
It's cold out here, but due to negative technicals, trend following algos are loading up on shorts.
However Commercials have been heavy buyers, and price is in the 94% of all 15 day drawdowns over the past 5 years. Prices are due for a retrace and we want to position for this. Action to take.
Buy the March 2018 2.70-2.85 put spread. You can buy this currently for 4.2 cents, while your upside is 10.8 cents.
Use a 50% stop-loss, or 2.1 cents which will then give you a R/R of better than 5-1.