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The Bulls Never Had a Chance

The Bulls Never Had a Chance

After being hit with a devastating combination of bearish news Friday afternoon and Monday morning, traders at the New York Mercantile Exchange had little choice when the market reopened. The July contract took it on the chin, gapping lower on the open before posting a 7.1-cent decline to finish at $2.237. The August contract did not fare any better, slipping 6.9 cents to $2.268. Estimated volume was solid with 78,116 contracts changing hands.

Traders were quick to point to "disappointing" six- to 10-day weather forecasts released by both the National Weather Service and private entities as a major reason for the decline. "There was talk late last week of a dome of high pressure expected to build over the Midcontinent and Midwest that would keep things hot. Now it looks like seasonal temperatures and even some rain relief is in the forecast," one trader said.

While the National Weather Service expects above normal temperatures for much of the upper Midwest and Northeast, it also looks for areas of below normal temperatures in the Southeast and over a large area of the West.

"The large electrics, sensing demand is not going to be what they had anticipated, came out as heavy sellers in the OTC market [Monday]. Then once the futures market opened locals added to the downward pressure and in the process became very short," another trader offered.

However, the weather was not the only thing on traders' radar yesterday. Several sources said they were becoming increasingly concerned with the large speculative long position held by the non-commercial segment of the market. In its Commitments of Traders report released Friday, the Commodity Futures Trading Commission reported that the non-commercial segment of the market was long over 51,000 as of last Tuesday. "Now that the market has moved back below the 40-day moving average, it is likely they will start to liquidate those positions," a New Jersey analyst noted.

What will it take to arrest the latest sell-off? Scale down buying by trade paper, who will be eager to pick up length below $2.20, a Houston trader said.

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