• Models continue to see further downside in the June 2025 futures for the near-term.

• Short-covering rally has been intact since Monday 4/28 - please refer to 4/28 post for reasons underlying this short-covering rally.

• Market went through buy stops located at 3.5 in NGM25 (June futures) immediately following release of EIA report on very heavy volume, fueling the upside rally.

• Strong volumes have occurred in NGM25 over the past few days in conjunction with bullish price action, notably Tuesday 4/29, further indication that short-covering is unfolding.

• We still do not recommend initiating any long positions in this market until long liquidation has been exhausted amongst systematic traders.

Our models continue to see further downside in June 25 Natural Gas futures in the near-term. The market had a strong rally today immediately following the release of the EIA storage report at 2pm EST.

The number was mildly bullish, however, the timing of the release exacerbated the upside move. The number is usually released at 1030 am EST - due to a glitch, the number was released at 2 pm. Volume from 2pm - 230 pm EST was very strong, as close to 30K lots were traded. Short positions had their stop level of 3.5 breached, triggering a flurry of bids in the last 30 minutes of trading.

We see a lot of stops concentrated between 2.9 and 3.0 in the June 25 futures - should the market break this level, the probability of an accelerated move to the downside increases significantly. If the market has truly reached a short-term bottom and long liquidation has been exhausted, we expect a strong bullish reaction immediately after this level has been tested.

On the upside, we see stops at the 3.75 level, and the 3.95 level.

Today, the market accelerated higher immediately after going through stops at the 3.5 level. Note how the market immediately fell after going through the 3.5 level, a trend which statistically tends to continue for the next one to three days following the breach of a minor key level.

Intra-day volume from 2 - 230 pm was over two standard deviations above the mean, further indication that this intraday move was an extension of the short-covering rally we have witnessed since Monday.

The shape of the volatility skew has changed slightly in the past few days, as there has been an increase in deep OTM put buying relative to deep OTM call buying - this is usually reflective of systematic traders that are hedging their long positions, as a systematic trader will use a rally as an opportunity to hedge their underlying position - especially if the underlying position is losing money!

Many systematic models got long in late Feb / early March as the market made new highs; these same models will be liquidating their positions as the market approaches new lows. Note the similarities between financial markets and the animal kingdom, where herd mentality rules supreme. In future posts, I will give insights as to how we can predict such herd mentality amongst traders using behavioral analysis.

With respect to systematic traders exiting their long positions - we do not see any end to this liquidation as of yet. Until we see clear signs of such liquidation, we do not recommend initiating any long positions. As we mentioned in our earlier posts, we do see signs that long liquidation is decelerating - which is hopefully good news for those of you patiently waiting to get long.

We will post an update in the next few days with a revised outlook .