For a third day in a row, natural gas futures moved lower Wednesday to test key technical support at $7.50. However, buyers were able to limit the day’s decline with a late rally. August closed at $7.55, down 3.6 cents for the session but up 7 cents from its $7.48 daily low.

Traders agreed that after three weeks of hurricanes, the gas futures market got a badly needed rest. Emily, which as of Wednesday afternoon had been downgraded to a tropical storm, was the third in a line of tropical cyclones that drew the attention of the natural gas market and sent prices soaring to more than $8.00.

However, the reprieve may be short-lived. By press time Wednesday, the National Hurricane Center was tracking a tropical wave spreading thunderstorms over Hispaniola, Puerto Rico and the Turks and Caicos Islands. Gradual development is possible over the next couple of days as the system moves to the west-northwest, the NHC said.

While some traders probably enjoy the volatility that comes with the steady procession of tropical disturbances, not all are a fan of the frenetic trading activity. “For years I was burned by being long on hurricane hype, this time I was burned by being short,” said local trader Eric Bolling referring to the market’s move on July 14 to $8.10. Since that high was notched, the trend has been pretty steadily down, with the market notching a lower low in five of six trading sessions.

“We breached a key level of support [Wednesday] at $7.50,” he said. “The longs tried to defend it; the shorts knew they lacked the conviction.” However, after successfully pushing the market below support, sellers failed to follow through on the move and the market bounced higher at the settle, he added.

Looking ahead, Bolling admits this is a tricky market to trade. “Storage is weighing on this market in the short-run and I would not be surprised if we continued lower to fill in the chart gap down to $7.20. Below that, $7.00 is certainly not out of the question,” he said. However, in the longer-term the market is not the least bit bearish as evidenced by the strength not only in the ’05-’06 winter strip, but also in the 2006 and 2007 calendar strips that are trading at near record levels, he said.

Hot weather and hurricane-related shut-ins have made the ritual of predicting the EIA storage report a dicey proposition this week. Expectations call for an injection in the 37-69 Bcf range. If realized, a build near the consensus 52 Bcf level would compare bullishly versus a 77 Bcf addition last year. The five-year average injection for this week is also 77 Bcf, according to EIA data.

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