November natural gas advanced Tuesday as traders suggest that the market is close to breaking out of its current directionless malaise and move higher. At the close November had gained 5.4 cents to $3.658 and December was up by 5.8 cents to $3.852. December crude oil gained $1.90 to $93.17/bbl.

Adherents of Market Profile see two dominant factors suggesting that prices are poised to move out of their trendless regime. Tuesday’s “value area is $3.640 to $3.680, but from a Market Profile standpoint, we are continuing to go horizontal,” said Tom Saal, vice president at Hencorp Futures in Miami. “We are trading in a horizontal range at the bottom of a price move. We also have a bottoming pattern known as a non-trend day on Oct. 17.”

The importance of value areas is that they are typically tested the next trading day, but they (untested value areas) can also serve as price targets or trading objectives. “We also have an untested value area at $3.502 to $3.539, and if that is a market bottom, then that won’t be tested,” said Saal.

The non-trend day is significant in Market Profile methodology. It occurs when the high and low price in the first hour of trading is not exceeded for the remainder of trading that day. It is almost as if the market goes into a period of hibernation following the first hour’s trading. “It’s very rare to have a non-trend day,” Saal said. “The entire day’s range is determined in the first hour of trading. Think of it. The market becomes listless after the first hour of trading.

“Since then the market is continuing to go sideways. The market has not rolled over lower, but has not blown up either and is still going sideways. We have two supportive factors from Market Profile for a market bottom in the sideways trading and a non-trend day.”

Longer term, analysts see commodity prices in general under imminent attack from forces of deflation. Although natural gas prices have been in a period of decline for some time, it is hard to envision a broad period of deflationary economic activity as not having an impact on natural gas prices.

Technical analysts say the picture is clear. “This rally in the stock market is clearly a bear market correction. And when this bear market correction is over, there will likely be a historic collapse,” said Walter Zimmermann, vice president at United-ICAP. “And this collapse will pull commodity markets sharply lower and it will drive the U.S. dollar much higher. And the evidence still points to deflation as the dynamic that will accomplish all of this,” Zimmermann said in his weekly note to clients.

Natural gas prices aren’t ready to collapse just yet. Analysts see some support from Hurricane Rina but said “a storm track through the producing region in the northern U.S. Gulf of Mexico seems unlikely at this point,” according to Tim Evans of Citi Futures Perspective in New York. “The temperature outlook seems more supportive with the updated 11- to 15-day temperature forecast now looking cooler than the five-year average, consistent with a first seasonal storage withdrawal for the week ended Nov. 11. The seasonal demand pattern remains the most substantial bullish factor for natural gas in our view, and we continue to see the potential for nearby futures prices to firm toward $4.50 by the end of the year, based on the step-up in physical offtake. Add in an early cold snap and that upside potential could expand to the $5.00 area instead.”

In its 5 p.m. EDT Tuesday report the National Hurricane Center (NHC) said Hurricane Rina was about 275 miles southeast of Cozumel, Mexico and was moving to the west at 3 mph. Rina was packing winds of 110 mph and NHC said it was slowly strengthening and was expected to approach the east coast of the Yucatan Peninsula Wednesday night and Thursday.

In its morning 11- to 15-day outlook WSI Corp. of Andover, MA predicted a broad pattern of below-normal temperatures for all but the desert Southwest and southern Plains. “Above-normal temperatures are forecast over the southern Plains and the southwestern U.S. Below-normal readings are expected to encompass the northern tier of the country and most of the eastern U.S. Anomalies are generally expected to average between 3-6 degrees above or below normal. Today’s [Tuesday’s] forecast is colder over the southeastern U.S. than it was yesterday.”

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