Despite signals that the $3.610 prompt-month low from Aug. 27 would likely hold up as the seasonal low in natural gas futures, the November contract penetrated the price level early Friday morning, opening the door to even lower prices.

After reaching a low of $3.583 just before 8 a.m. EDT, the prompt-month contract during the day's regular trading session held a tight range between $3.595 and $3.666 before closing the day at $3.651, up 3.4 cents from Thursday's close but 14.6 cents lower than the previous week's finish.

The breach of $3.610 had some market participants looking for a parachute. "This market just looks terrible. The storage injections over the last few weeks have been so big, I think they are really making up for lost time earlier in this refill season," said a Washington, DC-based broker. "It's pretty clear now with the summer heat gone, we're awash in gas supplies.

"This is why I think we are looking at a market that still wants to go lower. After running some technicals Friday afternoon, the $2.409 low from September 2009 is back in play. We still view this as the last leg down of a pattern that started back in June. One target brings us down to $3.250, while the other takes us back to the lows."

The broker noted that the only "good news" for the bulls is that the stock market is now over 11,000, "so the happy days for the equity market may be here again. Maybe that will give us some support in natural gas, but we'll have to see."

Some top traders admit that they missed the signs of continued market weakness but suggest a neutral stance in light of what they see as an unfavorable risk-reward environment. "Since [Thursday's] storage figure was far removed from our projection, our anticipated support in the $3.70-3.75 zone also proved off the mark," said Jim Ritterbusch of Ritterbusch and Associates. "From here, some additional price weakness toward expected support at around the $3.50 area now appears likely with our aforementioned support zone now providing staunch resistance. Nonetheless, we are maintaining a neutral trading bias for the time being as a result of risk-reward ratios that we view as unfavorable as far as bearish trading strategies are concerned."

Thursday's free-for-all selling was aided by funds and managed accounts. "The big black-box algorithmic traders were piling in on the market along with the rolls [November to December], and index rolls, but basically buying January, buying December and selling November," said a New York floor trader.

He added that $3.70 was a big technical trading number for the October contract and "once we got below that I saw the big black box traders come in and just hammer the November. There is just not a strong reason to buy natural gas, and already guys are talking about a 90 [Bcf injection in the next report]. There's no weather, and $3.50 is in sight. That will be a big support area that will attract interest on the buy side."

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