Building off the December contract's 12.7-cent gain during its first day in the limelight Thursday, traders pushed the front-month contract through the $4 psychological barrier on Friday to close at $4.038, tacking on another 14.8 cents in the process.
With no fundamental reason for natural gas futures prices to put together a two-day run higher to finish the week, perhaps the shorts in the market checked their calendars and were "spooked" to find out that Halloween had arrived along with the start of November and the traditional start to the heating season in some parts of the country.
"Things are looking up," said a Washington, DC-based broker. "When November futures expired Wednesday, we had nearly a 50-cent gap to where December futures took control. The interesting thing is that gap is not getting filled despite the fact that storage is plump and the bullish fundamentals just aren't there. We could be looking at a 'real' rally here. This big gap could be a breakaway gap in the market. All we really need to confirm a direction change is a settle above $4.144, which is not terribly far away. If we get over that we could be well on our way to a recovery to the old highs at $5.200."
While noting that the current market still has "an awful lot of short interest in it," the broker said a significant rally is still possible even without fundamental support. "Various technical indicators could invite technical trading, if not fundamental trading. There is no serious underlying justification for this uptick except for the fact that the market does what it does. It would be one thing to say we have one day higher, but here is another day and we've added another 15 cents. When all is said and done, we've completed this week on a very bullish note."
Heading into trading on Friday, students of market seasonality and technicians saw Thursday's 12.7-cent gain as setting the stage for what could be a major advance. "Over the past 10 years an unmistakable pattern has emerged from all major lows. The question here: will history repeat itself once again?" queried market analyst Brian LaRose of United-ICAP.
If history can repeat and if LaRose's calculations are correct, it "suggests a 95% increase in spot value is now under way. However, before we can jump on the bullish bandwagon key resistance must be decisively exceeded. [We] see two critical hurdles to clear: $3.945-4.006 and $4.455-4.631," he said Friday morning.
Others suggest rallies are selling opportunities. Jim Ritterbusch of Ritterbusch and Associates noted that Thursday's reported 71 Bcf addition to inventories and near-record supply "is quite transparent and has consequently been discounted into the market. We will instead continue to focus on market dynamics that remain tilted toward the bearish side from our vantage point. While we are aware that price up-spikes will occasionally develop on some inevitable cold weather forecasts and that such price spikes could be exacerbated by large speculative short-covering, we will be viewing such price rallies as selling opportunities," he said Friday morning.
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