After spiking higher moments after the release of fresh storage data showing a 247 Bcf withdrawal last week, natural gas futures slumped late Thursday morning as traders alleviated overbought conditions. Modest upticks were seen in the afternoon as bargain buying entered the fray. And though it was down 4.6 cents to $5.583 on its first day as prompt contract at Nymex, March was able to notch a higher high and a higher low for the session, giving some traders hope that another rally — while not likely — is possible.

According to the Energy Information Administration (EIA), working gas in storage was down 247 Bcf to 1,729 Bcf as of Jan. 24. The report was bullish as it not only exceeded the 112 Bcf comparison from last year and the 142 Bcf five-year average, but also because it was above the common range of expectations calling for a 220-245 Bcf draw. Stocks are now 681 Bcf less than last year at this time and 190 Bcf below the five-year average of 1,919 Bcf.

As if the report was not bullish enough, the EIA piled it on Thursday by also releasing a revision to last Thursday’s report. Due to revisions of respondent submissions, the EIA lowered its estimated level of gas in storage as of Jan. 17 from 1,985 Bcf to 1,976 Bcf. As a result, last week’s withdrawal was effectively increased from 210 Bcf to 219 Bcf.

Although the storage report and the modest afternoon gains were constructive, the market’s 20-cent decline late Thursday morning was potentially devastating for bulls who realize they are now fighting against the market’s seasonal inclination to slump. After correctly calling the market to retest the March high at $5.75, George Leide of Rafferty Technical Research in New York now eyes the downside. “What we had [Thursday] morning was similar to last week — a knee-jerk reaction to bullish data. We were calling for $5.75 or possibly $5.85, which was the February high. Now that the market has absorbed all the bullish news available, we are probably headed lower. We may have already seen the seasonal high.”

Leide looks for a retracement down to the $5.30-34 area, which held as support for the February contract on Tuesday. If there is a settlement below $5.28, watch out, warns Leide. “That would break the back of the market and could induce a steep drop down to the $4.75-80 level, which corresponds to the breakaway gap from mid-December.”

However, the market surprised more than a few spectators Thursday afternoon by moving higher to trim the day’s losses. The uptrend line, which was violated by the February contract Tuesday, is still intact on the March daily chart and currently offers support in the $5.50 area. Also supportive is the intermediate-term weather forecast, which calls for below-normal temperatures across nearly the entire Lower 48 states for the Feb. 5-9 period.

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