Despite calls for an expiration-day short-covering rally, natural gas futures traded listlessly sideways Tuesday, evidence that most traders had already squared their August books. With that the August contract limped off the board at $4.693, down 0.7 cents for the session, 60 cents less than July’s settlement and a whopping 72 cents below where it was when it became prompt contract a month ago. At 80,239, estimated volume was extremely low for an expiration day.

Traders were quick to point to position rolling from the August contract into the back months as a explanation for the sideways trading action over the last several days. After tumbling 14.5 cents Friday, August has held its own this week, slipping just 3 cents in two trading sessions. By comparison, the September contract fell 4 cents over the same period — an indication short positions were being carried over.

For most market watchers, the question was whether Tuesday’s lackluster trading activity was indicative of a mature market that is fairly priced or one that is experiencing the calm before the storm. Tom Saal of Miami-based Commercial Brokerage Corp. favors the latter scenario and looks for the market to rebound by the end of the week. “We are caught here between the intermediate-term downtrend and the longer-term uptrend. The day of reckoning is upon us.”

Specifically, Saal sees support in conjunction with the uptrend line drawn off the September daily chart at $4.515. On the upside, resistance is consistent with the steeply sloping downtrend line that comes in below the $5.00 mark Wednesday. Because these two trendlines are on a collision course, Saal looks for a break-out sooner rather than later.

With fresh storage data still a day away and with the market caught in the post expiry doldrums, look for technicals to show the market direction Wednesday. “We are oversold on the daily chart and we have some bullish divergence on the momentum indicator,” Saal continued. “Funds are short and not likely to add to those positions unless we see a big move lower. There are enough signals out there to convince us not to want to get too aggressive to the downside at these levels.

Craig Coberly of GSC Energy in Atlanta agrees and sees the $4.60-65 area as a potential launch pad for a thrust higher. “Gas continues to trade in the area of support defined by the rising 0.5-cent per day Gann support line and the declining 3-cent per day Gann resistance line…. Closing above [the $4.90-95 area] will be high probability evidence the trend has turned up. Closing more than 8 cents above [the $4.90-95 area] will elevate this to a ‘near certainty’.”

If the decline is not held in check by $4.60, Coberly looks for a drop to the $4.40-45 area.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.