Putting an end to a price slide that began a week ago after July natural gas futures reached an $8.210 high on June 4, traders this week found support residing near the $7.600 level. After putting in a Tuesday low of $7.595, the prompt month pushed higher to close at $7.682, up 7.4 cents from Monday.

"The key on Tuesday was that we held $7.600, so we have a little bit of a bottom in price here," said a Washington, DC-based broker. "The million-dollar question is are we stalled within the range or will we finally break to the next support level down at $7.460."

Because of the perpetual ping-pong match between support and resistance over the last couple of months, the broker said market participants are adjusting accordingly. "It has really pulled back a lot of the end-users because they are getting complacent, which will probably be the kiss of death eventually," she said. "Speculative traders have pulled out because...they have been banged around. I guess if you played the range, you'd be somewhat OK. The range has held so you will probably see better support come in at $7.460. People will try to defend that level, maybe get long for a move back to $8...and then try to reverse it again."

Looking at her firm's natural gas business, which represents end-users, marketers and producers, the broker said "everyone has their hands in their pockets at this point. They have either bought it or sold it already or they are waiting for the next price level to get some interest in order to put on the next level of protection, whether that is lower for the buyers or higher for the producers. Because of this, it really has been pretty boring to trade."

Looking at Thursday morning's storage report for the week ended June 8, the broker said she is expecting an injection of 93-103 Bcf, "but I think you have a shot at seeing an injection in the upper end of that range." A triple-digit injection in the Energy Information Administration's data for last week would bring the consecutive 100-plus Bcf build streak to four. It would also further close the supply deficit to last year's storage level. For the similar week last year, 77 Bcf was injected into underground stores.

It does appear that traders are increasingly reluctant to sell into a market that is expected to rise. Although directional traders may have a tough time with the limited moves gas futures have been making of late, options-related strategies may be a factor in an eventual market rise. The bearish tone to the market has put funds and managed accounts on the short side of the market, but "we feel that this bearish dynamic has provided fodder for the hedge funds that have recently been reloading on the short side mainly via the option markets," said Jim Ritterbusch of Ritterbusch and Associates.

Ritterbusch said he sees the funds selling call options at higher prices as a way to capture a premium. As long as the market continues to grind lower that strategy should continue to work. The funds, however, are wary of the great market risk going into what could be a warmer-than-normal summer and an active hurricane season. Needless to say, they have hedged their bets.

"As prices move lower and begin to exhibit some stability, we look for the short option holdings to be protected by futures purchases within the summer/fall portion of the curve," said Ritterbusch. He added that in his firm's opinion, the structure of the market in the summer and fall "is failing to discount a sufficient amount of weather uncertainty related to potential hot spells or an active hurricane season. With this in mind, we continue to favor the long side of the market from an investment perspective."

Echoing a similar bullish outlook, Tom Saal of Commercial Brokerage in Miami cited intermediate-term chart support at $7.25 and urged "buyers be ready." In the more immediate term his work with the Market Profile shows "value areas," which he expects to be tested at $7.616 to $7.682, $7.714 to $7.753 and $7.810 to $8.048.

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