• Models have switched to bullish for the near-term.

• Models identify new longs that have entered the market on Monday May 5th and Tuesday May 6th.

• Price levels to watch on the upside are 3.75 and 3.95 (NGM25). On the downside, stops are located at 3.4. If the market breaks 3.75, there is an above-average probability that there is a swift move higher.

• The current technical setup is bullish for the next several days.

• The risk/reward is favorable for anyone seeking to get long, as there is a possibility that the market explodes higher upon the break of 3.75. Long liquidation amongst systematic traders continues to declerate.

Our models have switched to bullish in the June 25 Natural Gas futures for the near-term.

Models have identified new longs that entered the market on Monday May 5th and Tuesday May 6th - this phenomenon has not occurred for quite some time! Statistically, when new longs enter the market they enter the market over an extended period of time.

The risk/reward is currently favorable for those of you seeking to get long.

We see a lot of stops concentrated between 3.75 and 3.8 in the June 25 futures - should the market break this level, there is an above-average likelihood that there is an accelerated move higher.

On the downside, we see stops at the 3.4 and 3.0 level. Stops at the 3.4 level are minor, whereas stops at the 3.0 level are significant.

Our models saw new longs enter the market on Monday May 5th and Tuesday May 6th. How do our models know this?

Let me explain with an example from fishing - let us assume that you are a fisherman and you are trying to assess approximately how many fish are located in a specific river. The challenge, as a fisherman, is that you cannot see any fish in the river, but as every experienced fisherman knows, there may be a plethora of fish deep below the surface.

There are many ways to approach this problem, but perhaps the simplest solution is to cast different types of bait deep into the river and wait to see how long it takes for a fish to accept the bait. If a fish accepts the bait quickly, then this suggests that there may be an abundance of fish lurking below. Conversely, if a fish accepts the bait only after an extended period of time - well, this is a preliminary indication that the number of fish is sparse. (As a side note - I don’t fish at all, but as I said in my previous post, studying Mother Nature carefully lends itself well to generating ideas.)

A successful algorithm can be modelled from this behavior, as one can observe how the market behaves when a large ask order is inserted - does the ask get lifted immediately? Or does the large ask order sit on the order book for an extended period of time without any market participants seizing this opportunity to get long? This algorithm gives a statistically significant edge as to of how many “fish” are lurking below the surface, waiting to get into the market.

In this case, the large ask orders were taken very rapidly. Also, when new longs enter the market they typically enter over a period of time as they seek to build their position gradually, all of which leads us to a bullish short-term view.

We continue to see long liquidation amongst systematic traders, but the pace has slowed considerably; as a result, we do not foresee long liquidation posing a threat to the market.

A short-covering rally unfolded from 4/28 to 5/2; it is unclear whether this short-covering rally is over. Nevertheless, if short-covering continues it will only fuel the upside rally!

I hope all of you are enjoying the spring months and have a fantastic summer ahead of you.