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What Goes Up May Come Down Twice As Fast

What Goes Up May Come Down Twice As Fast

After a convincing 7-cent gain to kick off the week, the futures market forged higher yesterday morning amid continued short-covering mixed with some fresh buying activity. The April contract was bumping up against the March 12 high of $1.825 in mid-day trading, but in the afternoon the buying dried up, leaving only sellers to determine the market direction. The resulting price slide-7 cents in 45 minutes-send the prompt month spiraling lower to finish at $1.754.

And although that settlement represented only a 1.5-cent decline from Monday's mark, it sent a discouraging message to bulls who thought they had the downtrend cracked. A California marketer was pleasantly surprised, but skeptical nonetheless of the 7-cent rally Monday. "There was no fundamental change in the market-just some short covering," he explained. "It is common at this time of month for people to roll prompt month positions into a back month. It doesn't mean they are abandoning their positions, just prolonging them." He thinks the $1825 level notched Tuesday will hold as the high for the rest of the week, leaving April to press lower, possibly expiring between $1.60-70 next Monday.

But if the market is going to continue lower, it will first have to get past this week's American Gas Association storage report to be released this afternoon. Tim Evans of New York-based Pegasus Econometric Group thinks the report could come as somewhat of a surprise. "Actual heating degree days from the National Weather Service for last week prove that it was not as warm as weather forecasts were expecting. That undercuts some of the risk of getting a bearish AGA storage report Wednesday. I look for a draw somewhere in the 50-80 Bcf range, which would not represent a dramatic departure from last year's 78 Bcf draw."

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