After plumbing to the lowest levels in over a month Monday, thefutures market rallied yesterday as scale down commercial buyingreceived unexpected support from local traders eager to reverseshort positions. The June contract finished at $2.200, up 2.4 centsfor the day.

Several traders were surprised by the market’s ability to changedirections so easily after June and July settled below theirrespective 40-day moving averages Monday. Fund traders and otherspeculative accounts typically use moving averages as parameters onwhen to enter the market. If the prompt month moves below theaverage it sends a sell signal. Conversely a move above the averagewould be a buy signal. The last time the prompt month moved abovethe 40-day moving average was on March 25 when the May contractsettled at $1.835. A buy placed then would have netted a 50-centmove by the time the contract expired on April 28.

Tom Saal of Miami-based Pioneer Futures feels that the marketgot a little out of its comfort zone Monday on the move into theteens. “Cash prices have been in the $2.20s for most of the month.What we saw today was some short covering following Monday’s longliquidation.” Looking ahead to expiration today, Saal expectscontinued waves of buying and selling. “In the end, it will comedown to who is willing to make or take delivery at that pricelevel. Based on traders’ experience for the month of May, theymight think twice about going long for the second month in a row.That potential selling, Saal argues, could limit the market’supside potential, leaving it susceptible to further decay on June’slast trading day.

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