After a choppy week of range-bound trading, bulls foundthemselves in the driver’s seat Friday at the New York MercantileExchange when weather forecasts and technical factors came intoagreement. Given the opportunity it didn’t take long forspeculators, comprised mostly of local traders, to become buyers inan attempt to push the August contract through resistance tobuy-stop orders that they knew were waiting in the $2.21-22 area.However, what they failed to realize was that there wasconsiderable commercial selling waiting there as well, it proved tobe more than enough to satiate the buying demand. The Augustcontract notched a $2.225 high shortly after 1 p.m. (EST) only tocome crashing back to settle at $2.187, an 0.8-cent advance for thesession.
“A false breakout” is how one trader viewed the market movingabove, then back below stubborn resistance at $2.205. “Everyone onthe floor was expecting the market to barely skip a beat intrending higher [Friday]. But then again, nobody figured sellerswould come out so aggressively,” he said.
But if locals were conspicuous as the buyers and commercialswere the prevalent sellers, where were the funds? Taking a break,insists a Houston marketer who had just pulled the latestCommitments of Traders report off the wire Friday afternoon. TheCommodity Futures Trading Commission said that non-commercials wentfrom being more than 40,000 net long to more than 10,000 net shortduring the two weeks ending July 13.
Is it bearish or bullish that the non-commercials have reversedto now hold a small net short position? Depends on whom you talkto, a Houston marketer said. “I believe it is bearish. The lasttime funds were flat the market was trading at $1.80. Now they areflat again but the market has suddenly been enriched 40 cents. Idon’t buy it. Technical factors aside, the market should be at$1.95-2.00.” However, he admits the market’s natural reaction mightbe bullish now that the funds are back to almost ground zero. “Theycould just as easily go long as they could go short from here.”
That having been said, many traders now turn their sights tofundamental factors and specifically the weather, which they feelwill be the impetus for the next big move. Sources agree that ifthe temperatures remain near normal and hurricane season continueswithout any major threat to Gulf production, prices will have adifficult time holding their ground.
Fred Gesser, of Omaha-based Strategic Weather looks for anamplification of the upper level high pressure to bring hightemperatures and low precipitation back to the Midwest and OhioRiver Valley starting Wednesday. However, he feels this patternwill be somewhat short-lived and expects the warm weather tomigrate to the East and then off the coast by the end of theweekend.
What about the prospect of hurricanes making waves in the Gulfof Mexico? Not likely, unless the Bermuda High sets up closer tothe East Coast, maintains Gesser. The Bermuda High is a highpressure system which can dramatically effect weather systems inthe Atlantic. If the high sits close to the Atlantic coast it tendsto steer storms farther to the west and into the Gulf of Mexico.However, at its current position in the Atlantic, the Bermuda Highwill tend to funnel storms up the East Coast and away from energyproduction in the Gulf, he said.
New York-based Thompson Global Markets takes a more technicalapproach. “The strong close and Access follow-through beyond priorhighs at $2.18 creates an outside up reversal pattern which mayspark some short covering. Failed support at $2.25-265 representsthe next serious resistance, with more selling on tap for the$2.30-325 area. Prior highs at $2.42 and $2.495 seem too remote atthis stage to be a factor, the group wrote in its July 16 PowerReport.
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