The July natural gas futures contract continued its descent Tuesday, dropping 17.1 cents to close at $7.519. While the day's activity brought the week's combined losses to 39.9 cents, some market participants were quick to note that the trading range of the last few months is still intact, adding that scaled-down buying is already evident.

Since April 1, a natural gas futures prompt month during a regular trading session has not traded below $7.280 or above $8.230. Another trend shows that the last four prompt months have expired within the $7.50s. The March contract went off the board earlier this year at $7.547 and the April and May contracts expired at $7.558 and $7.508, respectively. Late last month, the June contract finished its run at $7.591. Whether the July contract will follow suit remains to be seen.

"While we got below the $7.600 support from last week, Tuesday's $7.500 low doesn't mean anything," said Ed Kennedy with Commercial Brokerage in Miami. "Just like last Friday's visit to $8, it doesn't really tell us much at all. We may see a low of $7.300 on this move, but that will be about it. We have been locked within this trading range for months and it is not going to change anytime soon.

"The buying is already coming in on a scaled-down basis, so we might not even get all of the way to $7.300. I think one of the funds was bearish and was responsible for this particular move lower. The fund was trying to push things even lower, but the utilities have hedging to do and scaled down buying, so the fund is not going to succeed."

Kennedy reiterated that the risk of breaking the range is still to the upside, but "that kind of move" is going to require consistent heat or some storm activity in the tropics. "There is absolutely nothing on the storm front at this point, so that concern would appear to be a little ways off," he added. "My advice is to continue to trade the range at this point, because I just don't see any significant changes in the near to mid term."

Some of the top traders see funds and managed accounts as willing participants in any move to lower prices, though the potential for them to enter the long side of the market looms. "Although the funds are already sitting on a sizable short position, they appear comfortable for the time being given the market's inability to sustain price rallies above the $8 mark," said Jim Ritterbusch of Ritterbusch and Associates.

However, if prices continue to slide, the funds may just use long futures to lock in gains. "The funds could rotate toward the long side on a futures-only basis in the interest of protecting their short option positions should prices slide further. Consequently, we are still viewing the open interest makeup as a latent bullish consideration to this market," said Ritterbusch.

The bottom line, according to Ritterbusch, is that the market is likely to resolve the trading range that's been in place since early spring to the upside. "We have suggested reentering the long side of the market in the August contract at prices within the $7.65-7.90 zone lows at around the $7.58 area during the next few days," he said in a note to clients.

Tom Saal, who works with Kennedy at Commercial Brokerage, also suggested trading the range rather than anticipating any price breakout. He said to buy the low end of the trading range in the "mid to low $7.00 area and sell $8.10 to $8.40." Saal contends that end-users "look to be a major buyer from $7.50 to $7.20."

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