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Technicals, Fundamentals Point to Post-Holiday Fireworks

Technicals, Fundamentals Point to Post-Holiday Fireworks

Natural gas futures continued lower in an abbreviated pre-holiday trading session Friday, adding to losses achieved Wednesday and Thursday and stifling the hopes of bulls who were looking for short-covering buying into the long weekend. The August contract finished down 2.2 cents on the day at $2.287, 13.3 cents less than Wednesday's high price. Estimated volume was an extremely modest 28,784.

With little to comment about in Friday's session, traders turned their attention to this week's price outlook. Most feel weather will be the largest single determinant of the market's price direction in July. If temperatures continue tracking above normal, prices will stay up, but a return to normal or below normal readings could sink the market, sources agreed. Near triple-digit heat predicted in parts of the country over the holiday weekend forced many utility buyers into the cash market Friday. As a result, cash prices slipped very little from Bidweek levels.

But relief is on the way, says Brad Nesiba of Omaha-based Strategic Weather Services. While admitting that the holiday weekend and the beginning of this week will be a scorcher for much of the country, he looks for temperatures, at least in the eastern half of the nation, to start to moderate Wednesday and Thursday. "Depending on how the [low pressure] trough sets up, we could see below-normal temperatures from the Northeast into the Great Lakes and Midwest by this week. The West, however, will stay hot," Nesiba said. Looking further into the crystal ball at the medium range 11-15 day forecast, he predicts more of the same with high precipitation in the Southeast expected to hold temperatures there in check. "Texas will continue to be spilt. "Western Texas will stay warm while eastern sections will be more mild," he concluded.

But don't sell the farm just yet, countered a Gulf Coast trader who is weary of markets coming off long holiday weekends. "The market will need to sort through a number of pieces of information Tuesday morning. Many traders will have experienced hot weather over the weekend and that could lend some psychological support to prices. One the other hand, the forecasts will show moderating temperatures into [this] weekend." On balance, he remains bearish in the short term and looks for prices to continue into the teens. "Nuclear utilization is at a five-year high at 91.4% and there are more units coming back up [this past] weekend. If we get moderating temperatures as predicted, there will be a lot of excess gas on the market," he reasoned.

One fresh piece of information traders will have to digest Tuesday morning is the bi-weekly Commitments of Traders report released Friday afternoon by the Commodity Futures Trading Commission. Released after the close of the abbreviated Friday trading session, the CFTC reported non-commercial traders were still net-long over 40,000 in open interest. That figure is down from the 51,000 level of two weeks ago, but up from 34,000 last week. Does that mean the speculators are ready to liquidate their positions? Not necessarily, says a Houston risk manager. "Neutralizing their positions, maybe. They rolled out of July into August since the last report and it's not an exact science. In the process, they got a little less long. Now they have the choice of rebuilding or continuing to sell off," he said

Technically speaking, Tim Evans of New York-based Thompson Global Markets believes the market is in a pivotal spot. A move back through $2.35-36 would earn the August contract another try at resistance at $2.42, while support at $2.25-265 stands to limit further declines, he said.

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