Buoyed by forecasts suggesting February may be just as cold as January, the natural gas futures market notched a second straight daily advance Tuesday as traders continued to eschew the short side of the ledger. However, the market remains in a state of flux technically, prompting some observers to believe the market will have a difficult time rebounding from current levels to post new highs.

After gapping higher at the opening bell and etching a $5.79 print shortly before noon EST, the March contract spent Tuesday afternoon consolidating lower. It settled at $5.651, up 7.7 cents for the session but down considerably from its midday peak. At 45,710, estimated volume was light for the second session in a row, a possible sign the bulls lack conviction in their price actions.

The gains Tuesday began in the overnight Access trading session as traders reacted to a bullish medium-range forecast released by the National Weather Service late Monday afternoon (see Daily GPI, Feb. 3). The market ratified the overnight advances by gapping higher on the open Tuesday morning and continuing up to levels not seen in a week.

Don’t look now, but the latest intermediate-term forecast from the NWS is even more bullish. While the one issued Monday called for “normal” temperatures in the New England states, the revision out Tuesday afternoon has the Northeast cooling right back off to the below normal mercury readings suffered by the region for most of the winter.

Looking ahead, market watchers are wondering whether the latest round of weather forecasts will be enough to boost the market out of its technical slump. Since notching a $7.55 high back on Dec. 10, the daily continuation chart has been a bear’s dream, shuffling lower amid a series of lower lows and lower highs. While there is no clear consensus on how much damage to the charts has been done, most technicians agree that the market will need to trade above $6.00 for the outlook to turn back to neutral.

A break above Tuesday’s high at $5.79 would be impressive, but George Leide of Rafferty Technical Research in New York believes the market sided with the bears when it came back down to fill in the chart gap in the $5.59-61 area Tuesday. “A break of that level would put the market back on the defensive, leading to a move down to the $5.30s,” Leide said. To take advantage of those technical levels, he would be a seller against $5.79 and a buyer near the aforementioned chart gap at $5.59-61. Should the $5.59 level be broken, he would quickly liquidate his longs.

Alternatively, the market may be goosed higher this week by supportive storage data, warns Tim Evans of IFR Pegasus in New York. “Natural gas futures probed the upside early in Tuesday’s session on what may have been a test run for a later advance…[We see] Thursday’s DOE storage report as likely to offer support, with some 210 Bcf in net withdrawals comparing favorably to both the 208 Bcf draw from a year ago, and especially the 133 Bcf five-year average pull.”

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.