The gas futures rocket ran out of fuel and apparently had no parachute on Tuesday. April went into free-fall, opening the day down 22.5 cents, and then rapidly sailing straight through the $6 support level and several major trendlines to a hard landing at $5.944, down a grand total of 57.1 cents for the day.

“We’re seeing the reverse of the rally,” said Tom Saal of Commercial Brokerage Corp. “We literally blew up through this area so we shouldn’t be surprised when we blow back down through it.”

April fell through some significant levels of support, causing substantial technical damage, Saal said. “It took out the intermediate trendline on the daily continuation chart. It took out the 40-day moving average on the daily continuation chart, and now it is working against the trendlines in the April contract [chart].” He said the April 40-day stands at $5.903 and the trendline is somewhere around $5.75.

“If it settles below the April 40-day, it probably will bring the funds in, so there will be some motivated sellers.”

Saal sees “major league support” for the April contract at $5.465, the low that was put in on Feb. 13. After that low was reached in February, the market took off and ended at a high of $8.639.

“April hasn’t taken out a prior low yet and that’s why that number is important. But the wheels are starting to fall off here.”

He said if the market can bust through major league support it would be “step two of taking out the bull market.” April will most likely rest in the low $5.00s, perhaps even lower, at that point. “But it’s not going to go down as fast through this next dollar as it did this last one because we did a lot of trading in there, and plus we can see that we’re not that far above the summer month prices at the $5.50-60 area,” said Saal. “That will be supportive.”

The April-May spread is down to only about 13.4 cents, and in theory April actually should be below May because during an injection season the front month should be the lowest one on the board. Both Saal and George Leide of Rafferty Technical Research said they expect the longstanding backwardation in this market to vanish. Saal said the only way it would return is if April is much hotter than normal, and even then he’s not so sure. Saal believes gas production increases this summer will surprise more than a few observers.

He also believes the potentially large and bullish storage withdrawal number this week (estimated between 100 Bcf and as much as 160 Bcf) is “yesterday’s news.” He thinks the market has already factored it in and the most important feature going forward will be the spring weather. The spring warm-up “just takes all the anxiety out of the natural gas market, at least in the short term. We eventually will be talking about summer demand and how much storage we will have next winter, but right now that threat is a long ways off.”

However, Tim Evans of IFR Pegasus said he believes the market may be able to find support in the low $5.80s. “I’m surprised that we’ve been able to lop a dollar off the near-by contract in two days without an uptick,” said Evans. “But on a short-term basis I would say the market is technically oversold here. There was a pivotal high back on Feb. 10 at $5.844. There’s also an uptrend that started in early December on the April chart that ends up at $5.81. This is an interesting price range where there may be a little bit of technical support at least in the short run.”

Evans also thinks that anticipation on Wednesday of a large storage withdrawal in Thursday’s EIA report might be enough to turn things around. “I really expect the number to be at least firmly supportive. It may not be an outrageous draw, but if we see 150 Bcf, it would get us to a record low. Even the comparison with the 91 Bcf draw last year and the five-year average of only 63 Bcf would be bullish.

“With all this decline there has to be a floor somewhere. Once we find a significant bid, then I think we’ll see the bargain hunters jump in there.”

Evans also noted that Monday’s volume was “ridiculous” at 49,653. “There was more gasoline traded Monday than natural gas. Its not that there’s this tremendous flow of long liquidation that is just hammering this thing through every defense. It’s just there’s nobody home. A stiff breeze can move this market when the volume drops to such a low level.”

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