Natural gas futures took a Wylie Coyote-like free-fall yesterdayafter a bearish conspiracy of weather and technicals gave traderslittle choice but to liquidate long positions. After notching a newtwo-month high Wednesday afternoon, the December contract openedlower at $3.18 and never looked back, plummeting 25.8 cents tofinish at $2.965. January fared little better, tumbling 23.6 centsto $2.994.

It was “a complete debacle,” quipped New York-based technicianIra Hochman in an attempt to explain yesterday’s price movement.”Too many market longs, a lower opening, then wham, the doorslammed shut on the bulls.” And looking back at the charts, Hochmanunderstands, albeit too late, what transpired.

The market had been forming what he describes as a widedevelopment pattern over the past couple months. Wednesday’s latesurge drove prices to new highs, but in doing so also drove tradersto extremely long position levels, he told NGI. In fact, even Nymexfloor locals, who trade almost exclusively on an intra-day basis,were extremely long when they went home to watch their belovedYankees Wednesday night. When the market failed to follow-throughon their efforts Thursday, natural gas became the “easiest sell” inthe world, said Hochman. “Now I am just trying to figure out why Ididn’t see it until now,” he lamented.

Ed Kennedy of Miami-based Pioneer Futures takes a slightlydifferent tack. While admitting yesterday’s price demise wasexacerbated by long liquidation, Kennedy contends the move lower wasset in motion by weather forecasts. “Both the National Oceanic andAtmospheric Administration and the National Weather Service haveweighed in with bearish forecasts recently (see Daily GPI, Oct. 27). The NWS has been calling forabove normal temperatures in November and December for severalweeks. And with November right around the corner, that’s still theforecast. With 3 Tcf of gas in storage, the last thing this marketneeds is warm weather, Kennedy said.

Now that the market has fallen into a “buying tail” area on thecharts, Hochman believes there is a good possibility that priceswill hold and possibly rebound. However, if prices do continuelower and drop through $2.88, look out, he cautioned. “I don’t wantto see where this thing is going if that level doesn’t hold.”

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