It is a trader’s rule of thumb not to go home for a long holidayweekend with a large long or short position because of thepotential for fundamental or political forces to produce a severeprice move when the market reopens. Yesterday’s energy complex wasa textbook example of this rule.

In a price move that will not soon be forgotten by bull norbear, natural gas futures tumbled lower Wednesday as traders werewelcomed back from the holiday to mild temperatures in both easternand western markets and an almost 6% collapse in crude oil futures.

After gapping 13 cents lower at the open, the August contractcontinued its free-fall throughout the session yesterday to closeat $4.109, down 36.7 cents on the day. The out-months followedsuit, with October through January contracts reaching lock-limitsdown at 30 cents. Sellers caught holding longs in those months wereforced to hedge by continuing to sell the August and Septembercontracts, which by virtue of being the front andnext-to-front-months, are permitted to move as much as $1.50 duringone session. September closed down 35.1 cents at $4.091.

“Crude gapped lower and the rout was on,” explained a New Yorkanalyst. “Saudi Arabia agreed to produce 500,000 more barrels a dayand prices came off $1.83, to $30.70 per barrel. And while thetarget price remains $25 per barrel, he feels, over the longerterm, the OPEC target is more along the lines of the $20-23 perbarrel range.

However, oil prices were not the only story yesterday. Alsohaving impact was the weather across the U.S., which aside fromsome heat in the central and western plains, was mild and expectedto continue that way. According to the latest six- to 10-dayforecast released by the National Weather Service, areas from Texasup across the Western plains and Rockies along with Arizona and NewMexico are expected to see above-normal temperatures. Conversely,the entire Northeast quadrant of the country is predicted to seebelow and much-below normal temperatures next week.

And if that wasn’t enough fundamental data for traders to digestyesterday, they also had the latest storage data in which to sinktheir teeth. According to the American Gas Association, 69 Bcf wasinjected into underground storage facilities last week bringinglevels up to 1,636 or 50% full. While falling short of expectationsclustered in the 70-80 Bcf range, yesterday’s 69 Bcf refill wasviewed as neutral by most market watchers because it exactlymatched the build seen this time last year. After reaching its$4.07 low for the day shortly after the 2 P.M. (EDT) storagerelease, the August contract shuffled higher to its $4.109 close.

Now that fundamental factors have run their course on the pricelevel, traders turn their sights to technical factors, which maydictate whether prices rebound or continue lower today. Of primaryinterest to many technicians is August’s 40-day moving average,which closed at $4.048 yesterday. Many believe that if the Augustcontract is able to settle below that level, it could spawn anotherwave of selling that would propel prices into the $3.80s.Coincidentally, technicians are also focused on the $4.053 level,which corresponds to 38.2% Fibonnacci retracement off August’s movefrom $3.06 to $4.667.

As of 7 P.M. (EDT) last night, support at $4.05 had been testedbut not broken as the August contract put in a $4.056 low beforerebounding to trade at $4.06.

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