For the fourth week in a row, the natural gas futures market was unable to eke out much follow-through on the heels of a big move Thursday. However, in sharp contrast to the weeks ending July 26 and Aug. 2, when prices finished on a bearish note, the last two weeks have ended on a decidedly positive note, as traders have resisted the temptation to take profits ahead of the weekend. At $3.149, the September contract ended Friday up 2.2 cents for the day, and 40.4 cents for the week.

Last week the strategy of traders holding their longs over the weekend paid off handsomely, as prices gapped higher at the open Monday and notched gains in four of the five trading sessions. Last week’s only down day was Wednesday, and that turned out to be nothing more than a bear trap. By not breaking beneath key support at $2.88 in the afternoon, the September contract was still under the bulls’ helm and primed for a rally. The market wouldn’t have to wait long. Upon learning that a slightly lower-than-expected 53 Bcf was injected into storage for the week ending Aug. 9, the market erupted higher Thursday, hitting several key buy-stop levels along the way.

Tom Saal of Pioneer Futures in Miami put the buying in perspective by explaining how quickly Nymex prices jumped from $2.91 to $2.94 to $2.98 in just a few minutes following the 10:30 a.m. EDT storage release. In fact, the buying surge was so frenzied that floor traders attempting to buy September at $2.98 had unknowingly left willing sellers willing to transact down at the $2.94 level (After learning that this was the case, Nymex recalled the $2.98 trades). However, the intent was there and within minutes buyers had pushed prices back up to $2.98, this time without leaving any sellers beneath them.

While sensing that a sell-off at some point in the near-term is necessary and healthy, Saal is not about to underestimate the market’s ability to move higher this week. “We have seen stage one of the rocket. We are already above the 40-day moving average. If we settle above the downtrend line on a daily or weekly basis, we will have entered into stage two,” he reasoned. Drawn by connecting the May 14 high at $3.97 with the June 25 high at $3.605 on the September chart, the downtrend line in question is confluent with Friday’s high at $3.165. Moving forward, the slope of the downtrend line is a little more than a penny a day, meaning it will be down to about $3.10 by this Friday.

Another factor that traders will need to gauge this week is the continued erratic behavior of the non-commercial side of the market. According to the latest Commitments of Traders Report released Friday by the Commodity Futures Trading Commission, these speculative accounts had reduced their net-short holdings by more than 5,000 positions to 26,389 as of the week ending Aug. 13. Since then, the market has moved 17.4 cents higher, and Saal believes that the non-commercials are at the heart of the buying. “They have probably reduced that net short position by 10,000 or more contracts since then. They were leaders on the down move. They held their shorts while the market moved sideways, and now they are liquidating their shorts as the market moves higher. This is not a coincidence,” he said.

In daily technicals, key resistance exists at the aforementioned downtrend line at $3.165. On a settlement above that level, the market could run to $3.33, technicians agree. On the downside, support is seen at the psychologically important $3.00 ahead of more buying in association with the recent uptrend drawn in the $2.88-90 area.

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