Following on the heels of Wednesday’s dime advances, natural gas futures continued higher Thursday as nervous buyers re-entered the market to cover short positions. Gains were greatest in the prompt month, November, which advanced 5.1 cents to finish at $2.531. Comparatively, the out-months were less impacted by the buying pressure, as the front end of the market was limited to modest gains, while the back end of the market experienced slight losses. Volume was on the high side with 87,773 contracts estimated to have changed hands.

Despite the nickel advance in November futures, yesterday’s trading session failed to instill much confidence in bull traders. A broker confessed that yesterday’s action was significant because despite a four-day, 30-cent rally by the market this week, there was not a mass exodus of short positions. “Sure they are nervous, especially of the potential for a squeeze Friday, but what we saw [today] proves that the weak shorts are already out of this market, and it will take more than a little correction to shake the confidence of the shorts that remain,” he said.

From a technical perspective, yesterday’s action was neutral. Although November managed to notch a higher high and a higher low on its daily chart, it failed to fill in the chart gap up to $2.595. If the market is able to pierce the $2.60 barrier today, look for a test of the 40-day moving average in the $2.72 area. However, it should be noted that while buying on a break above the 40-day average has been a good trade historically at Nymex, it has not paid dividends lately. For example, on Aug. 15 the September contract moved above its 40-day moving average and remained there for two full days, only to turn tail and move sharply lower into its Aug. 29 expiry.

However, there was a silver lining for bulls yesterday. According to the latest six- to 10-day forecast released by the National Weather Service Thursday, below normal temperatures are expected next week over a large portion of the eastern U.S. from New York south to Georgia, extending west to the Mississippi River. That area of chilly weather will be tempered to a degree by above-normal temperatures expected over a large portion of the western U.S.

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