Following a two-week, 65-cent price rally, natural gas bulls cooled their heels yesterday and took profits on a portion of their holdings. That, along with sell-stop loss orders that were tripped on the way down conspired to push October futures back below the psychologically important $5.00 level.

Few sources were surprised by yesterday’s price retracement following the run to all-time highs Wednesday. While some traders were quick to point to bearish technicals (see Daily GPI, Sept. 7), others attributed the price decline to the need for a little convergence between prompt futures and August cash values. Although still very wide, that spread — at 15 cents — narrowed several cents yesterday.

With little in the way of tropical weather and with the next storage report still five days away, sources were forced to focus on technical factors to predict the market’s next move.

“It was a neutral day and that makes predicting [Friday] a bit difficult,” said Ira Hochman of New York-based Trot Trading Corp. referring to the market’s ability to trade both above and below the trading range set during the first 60 minutes of trading Thursday. “Because we settled in the upper half of [Thursday’s] range, I look for the market to test [Thursday’s] high in the morning. If traders are successful pushing above $5.04, you will see some follow through buying. Otherwise, we could see some more consolidation back down into the $4.80s,” Hochman said.

Looking ahead, traders are eager to see what the latest open interest data will show when the Commodity Futures Trading Commission releases its Commitments of Traders report after the closing bell this afternoon. Observers will take a close look at whether (and by how much) the speculative segment of the market has increased its long holdings on the almost 50-cent price rise since the last report. As of Aug. 22, non-commercial traders held a net long position of almost 20,000. Historically that group has shown the ability to accrue as much as 55,000 in net long holdings, and market watchers will be looking to see if they are near that level now.

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