Following a four-day, 55-cent rally, the natural gas futures market cooled its jets Tuesday as traders considered the impact of what some suspect may be the largest storage injection in the nearly 10-year data history. However, after being given the green light by the lower opening, bears failed to capitalize on the opportunity, leaving only light profit-taking to push prices lower.

The July contract closed at $6.36, down just 5.2 cents for the session. At 48,767, light estimated volume was a testament to the lackluster selling effort.

Few market-watchers were surprised by the quiet trading exhibited Tuesday. After all, prices had rocketed higher during the four sessions leading up to Tuesday, leaving the market in an overbought condition. Also at work, traders said, was softness in the nearby crude oil pit. After peaking at new 10-week highs Monday, the July crude oil contract slipped slightly to close at $30.67 Tuesday.

And while profit-taking and selling in sympathy with crude definitely influenced natural gas prices Tuesday, those factors paled in comparison to market concerns that the Energy Information Administration is set to release a whopper of a report this Thursday. Expectations ahead of that report are calling for an injection of 100-120 Bcf, which would easily exceed the five-year average refill of 90 Bcf. Meanwhile, anything greater than 111 Bcf will represent the largest weekly refill in the nearly 10-year history of EIA data.

However, looks and appearance can be deceiving. Last week the market chose to look past a larger-than-expected (read bearish) 95 Bcf injection on Thursday to rally on a modestly revised hurricane forecast that suggests there could be two more hurricanes (eight) than normal (six). Then on Monday the market managed to rally again — this time on support technical factors. The salient point here was that the natural gas market can and will look past undeniably bearish fundamental data to rally for almost frivolous causes.

That being said, July futures remain in an uptrend and traders are cautioned to respect the market’s upside potential. “The short-term and intermediate-term outlook has not changed,” wrote Craig Coberly of Atlanta-based GSC Energy in a note to customers Tuesday. “Measured from the [$5.85] May 29 low, the rally is expected to continue into about mid-June — possibly longer. The initial price objective for this move is $6.79 with a realistic probability of reaching about $7.37.”

To invalidate his bullish outlook, Coberly would need to see a break below the Gann support line drawn off the aforementioned $5.85 low. Because the line has a slope of 3 cents/day, it is seen as support Wednesday in the $5.96-99 area. More likely to be the case, Coberly hedged, is for a decline in July futures no deeper than $6.25.

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