After Breaking Resistance; Bulls Take Profits, Market Lower
Technical analysis was originated by Charles Dow in the late
1800s as an attempt to interpret recurring historical price
movements displayed by a group of stocks, which have since evolved
into today's Dow Jones Industrial Average. He would have been proud
of the natural gas futures market last week. For four days the May
contract ebbed and flowed within a 10-cent trading range until it
broke higher Friday in a technical buying spree. But as if it were
following the same script rehearsed during the prior two trading
days, the May contract couldn't hold onto its gains Friday,
releasing them in the form of profit taking ahead of the weekend.
The May contract capped the week with a 2.7-cent advance to $2.096
after notching a $2.15 high.
"Everyone was looking for confirmation that the rally in [the
Thursday evening] Access session was legitimate. As soon as the
market opened at $2.11 [Friday], the floodgates of buying were
opened," a Houston trader said. Another trader, however, was
surprised the market was unable to sustain the momentum to fill in
the November chart gap up to $2.17 Friday.
A Gulf Coast marketer agreed that the market was very
technically driven last week, adding that fundamentally all the
stars were lined up. "Weather was cooperative, marketing companies
are still short and utilities were buying gas to inject into
Several other traders pointed to forecasts calling for
below-normal temperatures this week as a supportive factor. On
Friday the National Weather Service released its latest six- to
10-day weather outlook, which calls for below and much below normal
temperatures in the eastern half of the nation the latter part of
"It's like somebody reversed the slide on the overhead
projector," said Tim Evans, of New York-based Pegasus Econometric
Group, referring to the expected flip-flop in temperatures this
week. "[Last] week it was the West that was cold and the East that
was warm." However, he feels that in the end the market will focus
on whatever part of the country fits its argument, which in this
case is the East and the expected cold.
But weather was not the only morsel of fundamental data analysts
were able to sink their teeth into last Friday. The Commodity
Futures Trading Commission (CFTC) released its latest Commitment of
Trader (COT) report, proving what many had suspected-speculators
had completely reversed their short position and gotten on the long
side of the market. As of April 6, non-commercial traders were net
long 15,739 positions, compared with a net short position of 12,865
held just two weeks prior.
And the last time the speculators were that long? April 1998,
when prices rallied to a high of $2.725 the same week the CFTC
reported non-commericials were long more than 35,000 positions.
"It's deja-vu all over again," quipped Evans.
He added that barring a quick reversal, the market will
eventually form a broad distribution style top. "The trick is not
to try and be a hero and pick a top too early. Wait until the funds
are done buying before you sell, or else you will be selling into
He continued, offering two ways to time the market. "You could
back off and look at a weekly chart. Weekly charts have picked a
reliable top four out of the last five times." Alternatively, Evans
says you can look at the hourly chart, not be too hasty and "go
with the flow."