Traders stopped the hemorrhaging Tuesday as December natural gas futures staged a minor rebound during the regular session to close at $4.922, up 9.8 cents from Monday’s finish.

After reaching an overnight low of $4.761, the prompt-month contract seesawed for the entire regular trading session on Tuesday. The contract put in the day’s high at $4.940 in morning trade, then dropped to $4.797 before rallying one more time.

Citi Futures Perspective analyst Tim Evans said the gas market was seeing “a more balanced trade flow” Tuesday morning “with some bargain hunting stepping in to help stabilize prices after their recent drop.”

He noted that the weather picture over the coming weeks will be calling the shots. “Warmer-than-normal temperatures for next week have now been largely discounted, while the 11- to 15-day outlook for normal temperatures across nearly the entire continental U.S. represents something of a blank slate,” he said. “The bulls may view that as a future cooling trend, and it is compared with next week’s warm spell, but it’s hard to envision much in the way of short-covering on a forecast that lacks any particular drama. We’ve been making the case that natural gas prices will be weather-driven in the near term, but it’s hard to drive very far on a neutral forecast.”

At present, some top traders see the market as reasonably balanced from a fundamental standpoint. However, the outlook has highly bearish and highly bullish arguments going for it. “Looking forward, the picture becomes less clear. Depending on which side of the fence you are on, you can make either a very bullish or a very bearish case,” said Mike DeVooght, president of DEVO Capital Management, a trading and risk management firm in Colorado.

It’s DeVooght’s contention that the “direction the U.S. economy takes going forward will determine the future direction for the price of natural gas. At this time, we feel most of the short-term bull run is over. We think there is a good chance gas will trade back into the mid-$4 range. On a trading basis, we will add to our short positions at this time.”

For trading accounts DeVooght advises holding a short December futures position established at $5.30 and risk 30 cents on the trade. He also suggests that traders hold a $5.50 December put option or take a riskier position and hold the $5.50 December puts and also sell $6.25 call options. End-users should stand aside, and producers should hold a 12-month $5/8 collar (short an $8 call and long a $5 put) for 35 cents as well as buy a 12-month strip beginning in December consisting of long a $5.50 put and selling a $7.50 call option against it.

In the short run, DeVooght may see a somewhat balanced market, but others have a more bearish outlook. “There is not much to write home about [in the way of bullish news] and it looks like traders have pushed the market lower over the last week or so. I think the market is looking to test down to the $4.50 to $4.60 area,” said a New York floor trader.

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