Maintaining Monday's downward price momentum, May natural gas futures on Tuesday shed another 11.2 cents to finish the regular session at $7.418. More impressively, the contract's trading range on the day seemed to point towards the possibility that the week's 38.3-cent drop through Tuesday might be added to on Wednesday.

For the second consecutive session, prompt-month natural gas ended up settling within 3 cents of the day's low. Monday's $7.530 settle was just above that day's $7.500 low and Tuesday's $7.418 close came in just above the day's $7.400 low.

Traders see the recent drop as a scheduled retreat from last Wednesday's $8.010 high. However, the question facing the market now is how low will the contract go before buying comes.

"I think the market rallied up to the $8 mark, where we had expected it to stop, and now it is searching lower for support lines," said Tom Saal of Commercial Brokerage Corp. in Miami. "According to the charts, we likely have a rising bottom here. Last time we tested $8, we got down to $6.800. With this test of $8 we are now probably going to drift down to something higher than that [$6.800].

"Using Market Profile analysis, I have some big support numbers down at $7.370 and then down at $7.250. After seeing the topping pattern on the charts and the market's uneasiness with the $8 level, the downward action over the last few days really doesn't surprise me. Now we will see where the buyers show up. Keep in mind we are now actually getting below first-of-the-month index. I think there are bound to be some buyers out there because people had to buy where they hadn't planned on buying due to this cold front in April."

NGI's Henry Hub average in the April bidweek survey was $7.56/MMBtu.

As for a strategy in today's natural gas futures market, Saal said he still recommends utilizing options. "We are still looking at options because of how cheap they are. They really are still the way to go. The market is going sideways and volatility is shrinking, which lowers the cost," he said. "What's nice about options is you can choose your level of protection. If you want to pay up a little bit, you can get your strike prices closer to the market, while if you are short on capital, you can buy strike prices that are a little further off of the market."

The broker added that despite the recent price fluctuations, futures were still pretty well range-bound. "We definitely still appear to be trading within a range until we get some more fundamental news here on what the summer is going to be like," Saal said. "The one thing about the natural gas futures market is that it never stands still."

It appears traders are also discounting an expected healthy nonseasonal reduction in storage inventories when the Energy Information Administration releases data Thursday morning for the week ended April 13.

Some top traders don't see the market falling much more. "We still look for selling to subside appreciably below the $7.50 area," said Jim Ritterbusch of Ritterbusch and Associates.

One floor trader is a bit more wary. "There is technical support between $7.48 and $7.54, but we could see down to $7.30," said a New York floor trader. He added that the weakness in the products markets also weighed on natural gas, but "for the next day or two traders will be focused on that support level."

Ritterbusch suggested that a withdrawal of 40-60 Bcf in Thursday's inventory report has been priced in, but traders might want to look out to the following week as well. The National Weather Service is forecasting well above normal accumulations of heating degree days (HDD) in key energy markets.

For the week ending April 21, the NWS expects that New England will receive 155 HDD, or 25 more than normal, and the populous states of New York, New Jersey and Pennsylvania will have to endure 151 HDD, or 41 more than normal.

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