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Futures Snap Back in Late-Day Rebound

Futures Snap Back in Late-Day Rebound

"You can't win the game if you give the ball away" was a seemingly logical but somewhat superfluous observation made by Howard Cosell on Monday Night Football back in the 1980s. If Cosell were to have commented on the natural gas futures market yesterday, he probably would have said something like, "The market couldn't move lower because there was no additional selling." And although that comment would also have been redundant, it aptly describes the nature of yesterday's price action at the New York Mercantile Exchange, where once early selling dried up, the market was free to bubble higher in near-frictionless trade. The May contract finished up 3.2 cents to $2.128.

Sources agreed that locals were responsible for the early selling yesterday as they pushed the May contract down to the mid- $2.00s. However, Ed Kennedy of Miami-based Pioneer Futures felt it was more appropriate to focus on what the market didn't do. "Locals set the stage yesterday for the market to take back some of last week's gains, but there was no bearish leadership from other segments of the market. As a result, the locals were forced to cover their shorts into the close." The prompt month rallied from $2.07 to its $2.135 high in the last hour and a half of trading.

Kennedy added that he was surprised there was not better scale-up selling by commercial traders, who he feels have a vested interest in the market moving lower. He pointed to the latest Commitments of Traders (COT) report released Friday by the Commodity Futures Trading Commission (CFTC) which showed commercial traders were net short more than 40,000 positions as of Tuesday, April 6. "If they aren't going to sell this market then who will? If nobody else steps up, then the funds will have an easy time taking this thing into the $2.20s before long."

And Susannah Hardesty of Energy Research & Trading of Greencastle, IN, agreed, and targets the first of her spring highs to come this week on a move to $2.20-25. Once there, she will look for sell signals on intraday stochastics to confirm an interim top has been established.

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