Natural gas bulls were back on the defensive yesterday after anearly attempt to push prices to new highs above $3.175 fell short.Once initiated, the downward momentum continued throughout much ofthe trading session, as traders took profits and filled in a chartgap created by Monday’s higher open. May and June contractssuffered a uniform 2.7-cent setback to finish at $3.110 and $3.124respectively.

“I like being a bear, but I don’t want to be a bearskin rug,”said Ed Kennedy of Pioneer Futures, describing his cautiouslynegative price outlook. “We saw some good topping action [Tuesday.]What this market needs now is a settle (either May or June) below$3.045. That would confirm the top at $3.175.

According to Kennedy, the market came closer than most peoplerealize to trading down to the low $3.00s yesterday. Although theyended up being a non-factor, options expiration yesterday hung likea dark cloud over the futures market. “There were as may as 4,600calls with a $3.10 strike price out there. Had the May contractdipped below $3.075, you would have seen the writers of those callsdump their futures positions,” he said.

George Leide, a broker with New York-based Rafferty EnergyGroup, also questions what, if any life is left in the up-trend. Wesaw good selling [Tuesday] down from the highs. On the upside, thismarket needs to break above $3.20 if it hopes to make any progress.On the other hand a break below support at $3.00-045 would bebearish,” he said.

If support fails to hold there, he looks for the $2.90 level tocome into play. “In addition to trendline support and the 40-daymoving average falling close to the $2.90 mark, failed resistancefrom the move higher is also found near $2.90,” he continued.

A possible catalyst to push prices over one of theaforementioned technical hurdles is today’s release of freshfundamental news from the American Gas Association. Preliminaryexpectations range from a very small net injection of only a fewBcf to as much as a 24 Bcf build. Kennedy favors the latter andbelieves that once the market decides to switch to the injectioncycle, the first refill is typically a big one. Last year at thistime the market packed only 5 Bcf into the ground although it hasaveraged 45 Bcf over the past six years.

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