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Bears Show No Doubt in Extending Price Rout

Bears Show No Doubt in Extending Price Rout

Natural gas futures continued lower yesterday and were able to break through a key support level. The June contract finished 4.5 cents lower at $2.191 after mapping out a $2.17 low for the day.

Few traders were surprised by the market's ability to trend lower amid what many felt were almost nonexistent fundamental factors yesterday. In the latest 6- to 10-day forecast the National Weather Service looks for a combination of normal and above-normal temperatures for most of the country. Only the areas of New York and northern New England are expected to see much above-normal temperatures.

Tim Evans of the Pegasus Econometric Group is unimpressed with the expected warmer than usual weather in the Northeast and points out that those temperatures will do little more than cause people to shed their sweaters during the afternoon hours. Instead, he feels the technical picture is "very bearish," which could lead to further losses into the weekend. "June formed a nice top between $2.205 and $2.41. Now that we have moved below that area of consolidation prices could be headed for the $2.05 level, which represents a 50% retracement from the $2.41 high and $1.69 low," he said.

However, in order for prices to continue lower the market must first get past another potentially bullish storage report. The American Gas Association said that 72 Bcf was injected into underground storage facilities last week. Although that fell at the top end of industry expectations focused on a 50-70 Bcf build, it was less than the 100 Bcf refill last year. The oft-quoted year-on-year surplus now stands at just 103 Bcf, down significantly from the 704 Bcf surplus that existed last December.

In daily techincals June now has support at the $2.05 level, while previously failed support of $2.205 now becomes resistance, Evans said.

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