The May Nymex natural gas futures contract took a break from itsrecent meteoric rise by nudging 0.6 lower to $2.556 Friday. Still,that price leaves the spot month up 8.7% for the week.

Despite Thursday’s move into the $2.60s, a broker feels May willfirst move lower before resuming its upward path. “I think May willconsolidate here a little bit since people are probablyshell-shocked with this upmove. I think May is going to eventuallywork higher, but we’ll go back and fill in a bit. I want to see ifthe forward premium over the cash market will remain by areasonable amount, say a dime plus or minus 5 cents. If Nymex moveshigher than this, it will be a topping action. But, if Nymex movesbelow this range, get ready for Stage II of the rocket to orbit,”he said, meaning if May futures become cheaper than April physicalgas, more people are likely to sell out of storage in the hope ofcovering that supply with cheaper futures. The significance of thislower potential available storage would magnify in the face ofextreme summer demand, he argued.

The broker further added that the recent spike in total openinterest proves the May price rally is for real. “Open interest isgrowing, which shows this is not a liquidation to get out of amarket people don’t understand. This shows traders are well awareof the underlying fundamentals out there, and the overwhelmingconclusion is that they’re bullish,” he said. However, the PegasusEconometrics Group warned in the April 3rd edition of its NaturalGas Report that the rally can reverse in a heartbeat: “Openinterest has jumped somewhat alarmingly the last two sessions to232,944. This indicator, like the RSI of 72 is high, but bullish aslong as it continues to rise. The problem is that it is based onmarket sentiment which can turn at any time. If the market canextend its rally above yesterday’s $2.605 high, we see furtherresistance in the $2.63-$2.65 range and then further selling on aspot basis at $2.80-$2.82,” the Group wrote.

If the market does move lower, look for immediate support at$2.53, followed by $2.46 and $2.42, a technician said.

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