Traders on Tuesday were taking a breather from the recent freefall in natural gas futures as the November contract treaded water for a majority of the session before closing at $4.557, up 4.4 cents from Monday’s close.

Market participants were also preparing Tuesday for the expiration of the November contract on Wednesday. Rise or fall, most traders believe the bottom to the market is already in stone as winter temperatures continue to march closer.

“Looking at the Elliott Wave theory, our models don’t see prices falling much below $4.50 before embarking on a final fifth wave higher,” said a Washington, DC-based broker. “Make no mistake, though, this is still a bull move. September’s $2.409 low is safe as the bottom.”

Others see a little more room below $4.50 for prices to roam. “The natural gas market is seeing some bargain hunting after Monday’s price drop, with [Tuesday’s] November option expiration and [Wednesday’s] November futures expiry as part of the mix,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “However, we also note that updated temperature outlooks are warmer than on [Monday], not cooler, which will translate into weak heating demand and somewhat more gas flowing into storage than would have been the case. We see this as leaving the downside vulnerable and the current minor bounce just an incidental adjustment rather than the start of a renewed bull trend.”

Some contend that the long-term outlook for natural gas prices depends on economic strength. “Regardless whether or not you are a bull or a bear, most will agree that the direction the U.S. economy takes going forward will determine the future direction for the price of natural gas,” said Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm.

DeVooght expects that “most of the short-term bull run is over” and is looking for prices to fluctuate in the mid-$4 range.”On a trading basis, we will add to our short positions at this time. We feel that because of the extreme volatility that natural gas can experience at this time of the year, trading the puts and collars is the best way to trade the short side at this time.”

He counseled trading accounts to buy $5.50 December put options, or taking a somewhat riskier stance and buying the December $5.50 put options and selling the $6.25 calls. End-users should stand aside, and producers should continue to hold the remainder of a $5-8 collar (long the $5 put and short the $8 call) established earlier at a cost of 35 cents. Producers should also purchase 12-month strips consisting of the purchase of a $5.50 put option and sale of a $7.50 call beginning with December, DeVooght said.

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