Storm Pressures Futures Through Key Technical Level

Buoyed by storm concerns and another overnight session dominated by buyers, natural gas futures jumped higher yesterday to post yet another all-time record high. After opening right on top of previous resistance at $5.10, the October contract raced to its $5.223 high during the first 90 minutes of trading, triggering buy stops on the way up. October finished just off its high at $5.195, up 14 cents for the session.

Equally impressive were the gains seen in the out months, led by the November contract, which rumbled 15.5 cents higher to close at $5.312. The winter strip kept pace, sporting a 14.1-cent gain to close at $5.196.

To go along with precautionary storm-related buying, the futures market also received a boost yesterday from technical buying as October futures moved above a key resistance level. Since the market has moved into uncharted territory, traders have been forced to look at Fibonacci extension levels, which are based on the market's trading range for a particular period. Specifically, traders are looking at the one-month $1.105-cent move from $4.715 down to $3.61 that took place from June 27 to July 26. Leonardo Fibonacci, a thirteenth century mathematician who rediscovered that in the continuous number sequence, the quotient of any number divided by the next highest consecutive number approaches 0.618. Based on this mathematical relationship, technicians believe that 38.2%, 50% and 61.8% retracements and their extensions are significant. By extending the previous high of $4.715 by 38.2% of the aforementioned $1.105 trading range, you get $5.14, and traders saw a wave of speculative buying enter the market yesterday as prices passed above that level. In fact, October traded at $5.14 at 11 a.m. (EST) and by 11:10 the prompt month was already at $5.20.

Looking ahead, technicians see resistance at the 50% Fibonacci extension at $5.27. Support resides at the $5.14 level and then again at $5.10.

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