August natural gas futures gained ground Tuesday on the day prior to expiration. Traders see little in the way to suggest that any fundamentals have changed, and perceived the day's activity as movement within a broad and uninspired trading range. At the close August natural gas rose 6.3 cents to $4.675 and September added 6.3 cents as well to $4.646. September crude oil tumbled $1.48 to $77.50/bbl.

"What is really required to give bulls half a case is to take out $4.85. The big numbers for us are $4.85 on the upside, and the bears have a case if the market breaks below $4.34," said Walter Zimmerman, vice president of United-ICAP. "In the meantime between $4.85 and $4.34 you have a bit of a technical no-man's land and the midpoint of that is $4.60. Guess what number the market has been congesting on either side of for the last two weeks: $4.60. The market is in the middle of a congestion zone, and it's not a very attractive spot to initiate a position. It's a fuzzball of congestion," he said.

Although the linkage between natural gas and other markets such as crude oil is often downplayed, Zimmerman has made the unsettling observation that stock markets, interest rates, etc. are locked together trading in sync hour by hour. "For the first time in history every key market is moving in lockstep, hour by hour together. Our understanding of what produces this unprecedented phenomenon is a market dominated by contracting credit and liquidity. The leverage doesn't exist, the credit doesn't exist, the liquidity doesn't exist for individual markets to trade on their own. They all rise together on fears of reflation and fall together on fears of deflation. They are being linked by falling availability and falling demand for credit. It's our view that that is not a good development for the economy."

Market bears may want to reassess the outlook for the economy. Monday the Commerce Department reported a surprising increase in new home sales. Expectations for June had been for 310,000 sales at an annual rate, but the actual figure came in at 330,000. The figures still have a way to go to match even year-ago numbers when approximately 400,000 new home sales were tallied in June 2009. Wednesday will bring a look at June durable goods. Analysts are looking for a gain of 1.0%.

Analysts see parallel movements in crude and natural gas markets. "Like the oil complex, natural gas is stuck in a trading range ($4-5). We have willing hedge sellers as we approach the $5 level and willing spec buyers as we approach $4," noted Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "In the absence of any significant economic or supply-demand altering event, we could be in this trading range for quite some time."

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