In what could be the most bullish 2-cent decline in recent memory, natural gas futures rebounded from early lows Wednesday as buyers continued to bet heavily on storage and weather holding the market up. After failing to extend down to a key downside objective at $6.70, the April contract rallied in the afternoon in light, pre-storage report short-covering. It closed at $7.021, down 2 cents on the day, but more than 27 cents above its morning low of $6.75.

Feeding off weakness exhibited in the prior two trading session, futures traders fished for sell-stops that are believed to exist below the bottom of the continuation chart rollover gap down to $6.70. However, after dropping more than $1.35 in a little more than two trading session, the traders ran out of bait Wednesday, and as a result were forced to cover their shorts.

Also at work Wednesday was a case of pre-storage report jitters ahead of Thursday’s 10:30 a.m. EST release. Fueled by record setting withdrawals, the futures market has rallied in seven out of the eight Thursdays and Fridays during the month of February. Looking ahead, most estimates are calling for a 170-185 Bcf withdrawal, which if realized would easily exceed both last year’s figure of 143 Bcf as well as the five-year average of 82 Bcf.

Citing the extremely cold temperatures last week, Tim Evans if IFR Pegasus in New York comes in above all other estimates with a 200-220 Bcf prognostication. “While there is a seasonal trend toward warmer temperatures, the forecasts continue to call for cooler than normal readings across the northern United States, suggesting that a growing storage deficit will remain the rule, not the exception,” he wrote in a note to customers Wednesday. That being said, Evans views the market’s behavior recently as a sizable technical correction within the context of a still fundamentally bullish market.

On the other side of the coin sits George Leide of Rafferty Technical Research who feels the market’s behavior once it filled in the top of the continuation chart gap (up to $8.20) was very telling. “We filled in the rollover gap to the upside on Friday and then collapsed. Now we are seeing the fruits of that…. We nearly took out the bottom of the gap at $6.70 [Wednesday]. A break lower would lead us down to the $6.00-07 area,” he said.

Also a bearish signal is the “textbook island reversal pattern” on the April chart, which Leide believes is a top, at least in the near term. “Technically, we have topped, but fundamentally the market is still strong. We could see a summer rally if storage remains an issue, but I would expect it would be from much lower levels.”

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