After recording a high of $6.610 on Monday, August natural gas futures swooped lower, giving notice that the bear move of the last few weeks might have a little more fuel left in the tanks. The prompt month notched a low of $6.390 before going on to settle at $6.410, down 3.4 cents from Friday’s close.

While natural gas futures hung around six-month lows, front-month crude continued to push 10-month highs. After recording a high of $73/bbl on Monday, August crude closed at $72.19/bbl, down 62 cents on the day.

Some said the stark contrast in behaviors within the energy market is stunning. “When it comes to the energy complex, it’s been A Tale of Two Cities. Natural gas went up not so very long ago based on something — that something being storage putting in a late winter appearance reducing storage a bit more than was expected, and lately…since nothing (or not enough) has transpired by way of widespread sustained heat and/or hurricanes, natural gas prices have gotten leveled to nothing, if you consider $6-plus nothing,” said Jay Levine, a broker with enerjay LLC. “Crude (and to a somewhat lesser extent the products since they saw wild gains earlier) is a bit of a conundrum since I’m not quite sure whether it’s been rising based on nothing, something or everything — but very likely the combination of all three.”

While natural gas futures continue to fall, Levine warned that even though “the summer clock is ticking” — helping to shave quite a bit of fear premiums off the price of natural gas — it’s still early in the season.

Levine said even though the markets are independent, he doubts that crude oil is that much more bullish than natural gas. “No matter, wildly divergent markets continue with natural gas deep in oversold territory. That in and of itself isn’t enough to elicit a major reversal but it certainly won’t hurt when — I personally feel not ‘if’ — it happens,” said Levine. “Crude has had little in the way of resistance — charts still look great — although technically crude is as overbought as natural gas is oversold. How long this can continue is anyone’s guess, but I suspect there’ll come a time when the spreads will narrow much more than they appear now. Regardless of existing divergence and how long it may last, this entire complex is still very much a bull market even if natural gas sits with a $6 handle.”

Some top traders expect the bearish decline may have run its course in the short term. “With an RSI [Relative Strength Indicator] at 25.3%, natural gas is almost as oversold as it was at the $5.740 low of 24.3% [set on Dec. 27, 2006],” noted Walter Zimmerman of United Energy. He suggested that any further decline from here does run the risk of “sparking a bear market correction. If there is a bear market correction in the near-term outlook for natural gas, we suspect it will occur by the $6.270 to $6.190 zone,” he said in a note to clients.

Zimmerman expected any rise this week from $6.270 to $6.190 to be the wave (IV) correction in a continuing five-wave decline. Elliott Wave analysis such as that used by Zimmerman models prices on a five-wave pattern, with three waves taking place in the direction of the major trend, I, III and V ( in this case downward) and two corrective waves against the trend II and IV. Thus if this format is correct, once the wave IV Zimmerman refers to is completed, natural gas prices would continue lower in a final wave V. Zimmerman currently places technical resistance to further advances at $6.510 and $6.660.

Weather bulls may need some help. In its most recent six- to 10-day forecast the National Weather Service shows a nation divided. East and north of a broad arc extending from North Dakota to southernmost Texas to Maine are expected to be below normal. Only central and southern Florida are forecast to be normal. West of the Continental Divide is forecast as above normal.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.