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July Futures Rally Despite Cash Weakness

July Futures Rally Despite Cash Weakness

After a quick check lower to fill in a small chart gap, the futures market continued higher last Friday in an abbreviated, but extremely active trading session. The July contract finished up 7.6 cents to $2.358, capping a two-day, 14.8-cent advance. Estimated volume was 66,263.

Several traders were surprised by the market's ability to tack on gains ahead of the Memorial Day weekend, in the face of softening cash market prices. In fact, a Gulf Coast marketer called Friday's futures price action an aberration, and believes the market will come back in line with physical market values by early this week. NGI's Henry Hub price for today's gas flow is $2.23. But a Houston-based trader was quick to point to Friday's considerable estimated volume figure, which he felt "legitimized" the advance. The $2.25-28 level was the pivot point, he continued. "A move below $2.25 and locals would look to retest the $2.17 low. A print above $2.28, and they would initiate a move to hit trade buy stops above $2.30," he said. The latter scenario came to fruition and by mid-morning Friday the July contract was spiraling towards its $2.37 high on the day.

However, the most compelling piece of bullish news last week might also have been the most subtle. Open interest Friday increased by more than 4,000 contracts and the aforementioned market watcher feels that could be an indication funds are adding to their length. "The storage report was a saving grace to the market at a time when funds could have just as easily reversed their long positions." Instead, he feels that the move higher in last Wednesday's Access session gave them the green light to add to their positions rather than liquidating them.

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