August natural gas futures fell Tuesday as traders digested economic reports showing figures that were less than what analysts had expected. Longer-term technical traders note that the market is moving within a broad trading range but have their parameters in place to identify when the market is ready to stage a meaningful advance.

August futures fell 6.9 cents to $3.535 and September shed 8.1 cents to $3.687. September crude oil fell $1.15 to $67.23/bbl.

In the parlance of those who follow the Market Profile, the market has been in a “horizontal period.” The significance of such a development is that the market typically moves from horizontal to vertical (either up or down), but the key is identifying when that is likely to occur. “What I would be looking for is a big 3-2-1 up day. That’s a big short-covering pattern, and we all know who is short,” said Tom Saal of Hencorp Becstone Futures in Miami.

Adherents of Market Profile claim that much market information can be gleaned by the way chart distributions form from day to day. “A 3-2-1 [up] distribution is where the fat part of the distribution is at the high end of the day’s price range. It looks like the letter P. Short-covering is what is going to generate movement to the upside, and we all know the funds are short,” said Saal.

A move higher may be a while in the making, according to market bulls watching economic data. Observers were not particularly pleased with the 7:45 a.m. EDT Tuesday release of the Goldman Sachs International Council of Shopping Centers (ICSC) report of weekly chain store sales. It was the third consecutive week of negative year-on-year sales figures, and for the week ended July 25 sales were down 0.5% from a year ago. The data followed a decline of 0.3% reported July 18, and a drop of 0.7% reported July 11.

Additional economic data surfaced with the 10 a.m. EDT release of July Consumer Sentiment data from The Conference Board. The report showed the index of consumer sentiment at 46.6, well below expectations of a 50 reading. The June figure was 49.3. The report indicated a new wave of deterioration in the assessment of the jobs market and future income, results that point to very slow economic recovery at best.

If a weak economy were not enough, analysts see weather-driven cooling demand for natural gas not occurring anytime soon either. “Cooler temperatures are keeping electrical generation demand from eating into production, far less inventories. As a rule of thumb, we need extreme heat or cold in the Midwest, the Northeast and South simultaneously to eat into production and inventories,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. He observed that from New England to Minnesota it has been impossible, so far, to push generation needs to levels necessary to consume inventories. “That does not seem to be the main thrust of this market right now, though, and traders seem to be shifting attention to the recovering economy and low rig counts,” he said in a morning note to clients.

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