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Quiet Before Storm, May Prepares for Expiration Week

Quiet Before Storm, May Prepares for Expiration Week

A chart gap, created when the one day's high price is lower than the low price of a consecutive trading day is an eye sore to chart watchers-they don't like them and they will almost always try to fill them in by trading the market back between the "gap." So it came as no surprise when the first order of Friday's trading was for the market to check lower in an attempt to fill in the 2-cent gap left between Wednesday's high of $2.18 and Thursday's low of $2.20. It never made it. In fact, sellers could barely dent it and managed only a $2.195 low, before late buying lifted the prompt month to just above unchanged Friday afternoon. May finished the week at $2.226, a 0.1-cent gain for the day.

Aside from gap, trading was basically featureless Friday as light long liquidation met nearly evenly with continued speculative buying. Many traders, however, elected to sit on the sidelines ahead of the bi-weekly Commitments of Traders report released Friday by the Commodity Futures Trading Commission. For many the report did not disappoint, confirming their suspicions that the non-commercial segment of the market has increased their net long positions. Primarily comprised of speculative funds groups and locals, non-commercials held 33,582 net long positions as of Tuesday, April 20.

But despite that staggering long position, which will have to be sold off at some point, Tim Evans of New York-based Pegasus Econometric Group thinks prices still have some upside potential. "There is a distinct possibility that we will see some long liquidation ahead of the May expiration Wednesday. However, that will just free up buying potential for the June contract," he said. Based on that, he suggests a strategy of selling the first half of the week and buying during the back half. "From there, June prices should coast higher. But ultimately the market will run out of buying support, which will put the market at risk of a much larger liquidation."

However, Susannah Hardesty of Energy Research & Trading in Greencastle IN, citing a combination of low storage injections and concerns regarding deliverability, remains firmly in the bullish camp. Hardesty, noting that prices are moving according to her projections, looks for continued strength into the May expiration Wednesday. "Although the expected resistance for the May futures contract is at $2.25, I would not be surprised to see prices higher than that into expiration, to $2.35-40." she wrote in her Natural Gas Weekly Report dated April 22, 1999.

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