Adding more credibility to the view that the psychological $8 level could be a top, bullish natural gas futures traders on Friday were unable to push the March contract above $7.920 during a quiet, week-ending trading session. The prompt month traded a slim 11-cent range from $7.810 to $7.920 before calling it a week at $7.827, down 4.4 cents on the day but 35.1 cents higher than the previous Friday's close.
After being rebuffed by the $8.035 high in Globex trading on Feb. 5, the bulls made another run higher in overnight trading Thursday but met the same result. After recording a $8.027 high overnight Thursday, the prompt month could get no higher than $7.920 during Friday's regular session. This activity over the last week has traders questioning technical trading points and wondering what the market's potential to trade higher really is.
Traders see the failure of March natural gas futures to break above the regular session high of $7.960 posted on Jan. 31 as an important indication that the brutal cold that has slashed through the country from Montana to Maine has lost its market-moving capabilities. The question is: if the cold weather has been completely discounted, can prices still head higher?
"We were pretty quiet most of the week and especially on Friday. All week long futures kept creeping higher and higher, and I think that had a lot to do with the anticipation of a large storage withdrawal," said Steve Blair, a broker with Rafferty Technical Research in New York. "When we got the 224 Bcf withdrawal, we didn't scream above $8 like I thought. We moved higher because the number was slightly bigger than expected, but then the price level fell right off. You get to the point where you think you have a pretty good pulse on this thing, and the market just slaps you back.
"The two rejections at the $8 level don't bode well for the bulls. However, the market is not breaking down here either," Blair added. "I really don't think people are getting short up here. I think it is more a case of people trying to get long; failing, they get out, and it sells off a little bit and then they come right back. Futures really like this $7.800 price area. I'll be curious to see what kind of withdrawal we get for the week ended Feb. 9. It should be quite large."
Despite turning the year-over-year storage surplus to a 26 Bcf deficit following Thursday's report, Blair was quick to note that storage levels are still 378 Bcf above the five-year average. "Last year should not be the measuring stick because we ended last year's heating season with record levels of storage," the broker said. "You really have to be careful with the comparisons, because last year was not normal."
Looking ahead, Blair said he doesn't see a whole lot of room for prices to run to the upside if the cold weather moderates as forecast. "However, if some of these forecasts are wrong and we continue to see extreme cold weather past the middle of the month, that could change the price picture -- as well as price resistance -- in a hurry."
A New York fund trader also commented on the market's inability to sustain an advance. "Overall, the market has been forced to hold up, and it doesn't seem to be working as it can't get to, or hold, technical levels that affect momentum," he said. "I believe another sign is the activity in the March-April spread, which has featured the selling of the March contract. The April contract seems to maintain itself throughout the day. This says to me that March is not on steady feet."
Others see the market's inability to break lower as a sign that the bullish case is still intact, forcing them to seek technical parameters to guide their trading. "A good spot to buy the market is the 100-day moving average at $7.717. In Thursday's trading, the market sort of bounced off that, and [that point] could be used to buy more," said a New York floor broker.
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