After encountering heavy overhead selling above last Thursday’s $4.13 high, natural gas futures sunk lower Monday as traders took back early-session advances and demoted the market to its lowest level in more than a week. The July contract closed 4 cents weaker at $3.939, but comparatively, that was the good news for bulls. The rest of the summer strip slipped 4.1 cents and the winter strip sunk 5.4 cents. Keeping with the trend, the 12-month strip tumbling 5.4 cents as well.

Local and fund short covering was once again blamed for the late morning price rise that saw July spike to $4.15. However once above the $4.13 level, the market was met with strong selling, in conjunction with losses in both heating oil and crude markets. Also impacting were fresh weather forecasts calling for mostly mild temperatures across most of the country. According to the latest six- to 10-day forecast released Monday by the National Weather Service, below-normal temperatures are expected across the entire Southeastern U.S., including Texas.

For Tim Evans of New York-based IFR Pegasus, the emergence of hot temperatures is absolutely essential if this market expects to prevent a move to new lows. If warm temperatures fail to materialize, Evans looks for a break of support at $3.89 to produce a move to $3.67 and $3.725, which correspond to lows etched on May 30 and June 8. If those levels fail to hold, a move to $3.25-40 could be in the cards.

That being said, Evans is looking to open a 100% short exposure at $3.87, with a protective buy stop at $4.07 to limit that risk.

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