After tumbling to a new two-week low Tuesday, natural gasfutures roared back to life Thursday and Friday as traders wereforeced to cover their newly acquired short positions. With thatthe February contract was able to take back a dollar of lastTuesday’s record-breaking $1.411 sell-off, finishing the week at$9.261.

Traders were surprised when they arrived back in the office lastTuesday to learn that bears had been at work in the overnightAccess trading session. That selling pressure coupled with weatherforecasts pointing to a considerable warm-up this week were enoughto produce a massive sell-off throughout the day Tuesday. When allwas said and done, the February contract was $1.411 lower at$8.364, the largest single-day price erosion in the commodity’shistory.

Follow-through selling was the name of the game Wednesday astraders awaited fresh storage data. However, not even a modestlybullish storage report could stem the price slide, as Februarytumbled to close at $8.189.

According to the American Gas Association, 209 Bcf was pulledfrom the ground during the week ending Dec. 29, leaving storagefacilities with 1,729 Bcf, or just 53% full. Although that draw waswell within the range of market expectations, it far outpacedhistorical comparisons with last year (133 Bcf) and the 5-yearaverage (135 Bcf). Last week’s withdrawal was also conspicuousbecause it represented the first time in the seven-year history ofAGA data that storage has decreased by more than 200 Bcf during aweek in the month of December.

However, just when it looked as if bears would take the Februarycontract below key levels of support in the lower $8.00 area, bullswon back control at Nymex Thursday morning as fresh privateforecasts cast doubt on governmental forecasts issued earlier inthe week.

According to Jon Davis of Salomon Smith Barney, a more zonal jetstream over the next few weeks will supplant the high amplitude jetstream prevalent for the past four to five weeks, allowingtemperatures to moderate in the central and eastern U.S. And whilea similar set up last winter produced temperatures 10, 15 and 20degrees above normal, that will not be the case this year, hecontinued. “The reason for this lies in the snow cover variableacross the US. To put it in political terms that everyone canunderstand, it’s the snow, stupid!” By Friday more of the same wason the way as snow was falling on population centers of the EastCoast from Washington northward. Prices meanwhile were rising againamid technical buying and follow-through short covering.

Looking ahead, Jerry Rafferty of New York-based GPR, Inc.believes the current price level offers a relatively low riskselling opportunity. Specifically, he points to resistance levelsat $9.25, $9.45 and $9.65 that represent several different entrypoints to short this market for a potential move back down to the$8.00 level. The crux of his recommendation stems from the market’sinability to hold support through that same $9.25-65 area on themove lower last Tuesday. “When really good bull markets breaksupport levels and then get washed lower, those [support] levelsbecome excellent selling opportunities when the market returns tothe scene of the crime.” If wrong, and prices push through $9.65,he would exit the short with a $9.70 buy stop for a small loss.

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