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Futures Resume Upward Push as Cash Returns to Commodities

After the rally stalled on Monday as traders instead tested downside support, natural gas futures bulls on Tuesday once again pressed the upside, scoring a 14.7-cent gain to close the day's regular session at $4.449. Commodities on the whole showed impressive strength with June crude futures picking up 35 cents to close at $58.85/bbl.

"We are getting a lot of good buying in natural gas with some possible short-covering thrown in as the commodity sector overall is really picking up," said Julio Sera, a broker with Hencorp Becstone Futures LC in Miami. "The U.S. dollar was weaker again Tuesday, so that is also helping commodities along here. The fresh buying is certainly coming in as the appetite for risk begins to grow again with the expectation that there will be a quick economic recovery."

The broker said there were a number of things that impressed him about natural gas futures on Tuesday. "The day's action is what I call a 'good move.' We had strong gains and a solid close, but the key here is the move was on heavy volume, which we haven't seen in a long while. There was some selling into the rally right around the $4.500 price level."

He added that the lows could very well already be in. "At the moment that $3.155 low from April 27 looks like a bottom. We are moving away from it pretty swiftly, but we'll see. Some of the exchange-traded funds are beginning their rollovers, so we'll have to watch what happens there. This could be a near-term top for the market as the funds sell aggressively while doing their rollovers. That said, it looks like we are putting a pretty sturdy base in place and more importantly...it looks like we can build on it," the broker said.

In the near term, June futures may have room to rumble. "We would continue to emphasize a lack of significant chart resistance until about the $4.60 level basis nearby futures," said Jim Ritterbusch of Ritterbusch and Associates. He added that commercial hedge selling was not likely to surface as firms "may await better opportunities. With little selling available to slow this advance, additional large institutional short-covering could easily push values higher into the $4.550-4.600 zone."

Ritterbusch confessed that the recent strength looks to be at odds with fundamental factors such as a growing supply surplus. "It should be recognized that the natural gas [market] has evolved as another financial instrument for the time being as it had recently become quite inexpensive relative to other commodities," he said.

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