More than a few minds may have been changed Monday about the futures market turning south to possibly post new lows this spring. April blasted 22.1 cents higher to $3.021. The daily high was reached in the early afternoon at $3.040. While many are still looking for the market to backtrack later this week, some experts now say that a downturn now will be nothing more than a temporary correction possibly reaching a bottom in the $2.50s.

Monday’s major rally was aided by “some pretty hefty commission-house stops in the 200-500 [contracts] range,” according to Ed Kennedy of Pioneer Futures. “Coming through commission houses, it’s hard to find out who it is — it could be trade groups or it could be funds. But it doesn’t look like there are any more in this area, so we may be setting ourselves up for a correction to the downside any time in the next couple days.”

Kennedy said he’s expecting prices to fall nearly as rapidly as they have risen over the past few days. “It’s going to be a profit-taking type correction. But I doubt you are going to get much below $2.50, to be honest with you, on any correction. I know that sounds like blatant heresy with everyone being so bearish out there, but the market is telling you the bear market is over.”

Tim Evans of IFR Pegasus has a different perspective. “People are starting to throw in the towel? Well good. That brings us that much closer to a turning point,” he said. “It’s typical of what happens at a market extreme.

“Let’s ask ourselves ‘where is this thing going?’ Are we already on our way back to $10. Are we going to do this now in the spring when heating demand this week is going to be at the lowest level since the first week of December? And it’s not coming back up from that level; it’s March. The shoulder months are upon us here.

“I think when the market ultimately does turn lower, people are going to be equally surprised by how far it goes on the downside as they have been over how far it’s gone on the upside,” said Evans.

Evans noted that there is more gas in storage now than in 1995 when prices fell to $1.25. “I look at the storage levels and say ‘come on!’ Maybe the future [production] prospects warrant some higher level than that, but there’s just an awful lot of storage gas there. I think it’s a long road back to a bull market. The fundamentals just don’t flip like a light switch.”

Evans said he expects the futures market may try to stretch to a new high off the storage data this week, but it’s likely to get slapped down shortly thereafter.

“We could trade sideways Tuesday and the first half of Wednesday, just waiting to see what the storage number is going to be,” he said. “Maybe we’ll eke out another high as we come closer to the news. But the higher it goes now, I see it as simply becoming fundamentally more overvalued, as well as becoming technically more overbought.”

There were 170 heating degree days last week compared to a normal number of 166. Evans is expecting a storage withdrawal of 110-130 Bcf compared to 75 Bcf last year. Thomas Driscoll of Lehman Brothers said he’s expecting a 110 Bcf withdrawal.

Jay Levine of Advest Inc. agreed a pull back in prices is likely, but he said it’s probably healthy for a longer-term shift in the trend. He believes there’s a significant fear factor built into this market because of the high prices last winter. Signs of a economic recovery, the declining rig count and production short-falls have prevented prices from cratering and making the fresh lows so many were expecting, said Levine. “Although storage is at record levels, it’s impossible to predict what kind of summer we’ll have and there is still, in my opinion, a fear premium built into prices across the board.”

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