Weather, Short-covering Puts Downtrend in Jeopardy
Ding-dong the downtrend is dead. Well maybe its not dead quite
yet, but it certainly was dealt a potentially fatal blow yesterday
when short-covering by funds quickly turned into a buying
free-for-all as commercials and locals entered the fray. The August
contract finished at $2.395, up 14.2 cents for the day. Nearly as
impressive as the price action was estimated volume, which
registered 113,049 contracts.
Several traders were at a loss to explain the upward surge
Thursday following what many felt was a "disappointing" storage
report released Wednesday night. According to the American Gas
Association 78 Bcf of gas was injected into the ground for the week
ending July 16. And although that figure was even with the 79 Bcf
refill seen a year ago, it paled in comparison with market
expectations, which centered on a 55-75 Bcf figure. However,
shortly after the AGA released potentially bearish news, the
National Weather Service countered with some price constructive
information. In the six- to 10-day forecast the NWS expects above-
and much-above normal temperatures next week for nearly half of the
country from the Northern Plains eastward, including the upper Ohio
and Mississippi River Valleys, the Mid-Atlantic and Northeast.
Those contrasting fundamental factors left the market in a
quandary Thursday. It was either trend lower in reaction to storage
or move higher in anticipation of continued hot weather. As is
often the case, futures lived up to its name yesterday and sided
with the weather going forward.
Can the market continue to add to its winnings ahead of the
weekend? Not according to Thompson Global Markets, which feels that
the market may be overbought and therefore needs to consolidate
before trying a retest of the $2.495 peak from July.
"A tenuous position," adds Tom Saal of Miami-based Pioneer
Futures in an attempt to explain the current price level, which is
flirting with a settlement above the long-standing downtrend on the
weekly continuation bar charts. "Everyone on the floor was talking
about it today. If we settle above $2.35 [Friday] we will have
broken out of the downtrend," he advised. And just how long has
this downtrend been around? Since the week ending Dec. 20, 1996
when the January 1997 contract notched a high price of $4.60. If
you draw a line from there down to the November 1997 contract high
of $3.80 and extend it to today, $2.35 is your number. We have been
flirting with the downtrend for 4-6 weeks now, but have not been
able to settle above it on a Friday."
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