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Bears Shrug Off Storage, Deposit Market Lower

Bears Shrug Off Storage, Deposit Market Lower

After a brief uptick during the Wednesday night Access trading session, natural gas futures continued lower yesterday at the New York Mercantile Exchange and settled below key support levels. July finished at $2.285, after carving out a $2.27 low early Thursday morning. Estimated volume of 95,938 was almost double that of Monday and Tuesday.

Most sources contacted by NGI were at a loss to explain the futures weakness in the face of supportive weather forecasts and a year-on-year storage surplus that was erased to zero last week. The National Weather Service released its six- to 10-day forecast Wednesday, which calls for a warming trend next week across much of the country.

A Dallas-based source, however, points to the mild weather that much of the nation is currently experiencing as a bearish factor in the near term. "Cash prices came off this morning and brought the futures market with it. Cash has not been supporting the screen very well lately and futures finally fell under its own wait," she explained.

Technically, she believes the July contract will have to dodge a bullet today if prices have any chance of trending higher. "The real test will be if the market settles below the 40-day moving average for the second day in a row Friday. Typically two straight settles below the 40-day will spawn a round of selling. If that happens, then a move back into the high $2.10s is not out of the question." The 40-day moving average for July is currently $2.325.

A Houston trader agrees that the market is vulnerable to further losses tomorrow, but warns that bulls have had good luck lately heading into the weekend. Despite mixed cash prices and market sentiment pointing lower the futures market has posted gains the last three Fridays.

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