After knocking on the psychological resistance door three times earlier this month, natural gas bulls finally reached $5 and settled above it on Monday as the July contract recorded a $5.013 high before closing out the regular session at $5.006, up 22.5 cents from Friday’s finish.
At least one trader said he believes that the funds were involved in the recent uptick, but noted that the market is likely returning to “where it should be” priced.
“We’ve been talking about fund short-covering for some time now and I think that, along with new fund money coming in on the long side, resulted in Monday’s run higher,” said Tom Saal, a broker with Hencorp Futures LLC in Miami. “Based of the last Commodity Futures Trading Commission’s (CFTC) Commitments of Traders report, it looks like the funds might be adding new longs here.”
As for the fall of $5 resistance, Saal said it was only a matter of time after the three-day trading stretch from June 4 to June 8 produced highs of $4.977, $4.944 and $4.995, respectively.
“Technically, if you run up against a number a couple of times, you’ll likely get through it in the near term,” he told NGI. “Now the question becomes whether the market has enough legs to go much higher. In my opinion, I think it does. Based off Market Profile analysis, I think we could get to $5.250 to $5.500.”
Saal said he feels the market is returning to a price range that suits the current landscape. “When people say this move is technically driven, it really means that the market is probably equilibrating back to where it should be. The funds had sold this market down probably lower than it should have been priced without their participation. Yes, we have record levels of storage for this time of year, but does that mean that the price of gas should be $0 or $2? Of course not. It is probably adequately priced right in here.”
Saal said the big technical number on the downside to keep an eye on is $4.600. “If we keep trading above that level, it will be a floor for a good while,” he said.
Heading into Monday’s session, Saal foretold the market’s jump on the day. Ahead of the regular session, Saal said, “July should test resistance in the low $5.02 area. Look to be a buyer in the low $4.80s.”
Data from the CFTC showed that funds and managed accounts exited the short side of the natural gas market and entered the long side in droves during the latest reporting period. For the five trading days ended June 8, managed money — traders concerned with the directional component of the market and not concerned with offsetting a physical position — increased long futures and options positions and exited short holdings.
In its Commitments of Traders Report the CFTC reported that at IntercontinentalExchange managed money increased long futures and options (2,500 MMBtu) contracts by 7,984 to 329,342 and reduced shorts by 14,982 to 35,066. At the New York Mercantile Exchange managed money increased long futures and options (10,000 MMBtu) by 16,683 to 158,702 and short contracts fell by 24,816 to 187,640. When adjusted for contract size total long holdings increased by 18,679 and shorts declined by 28,561. For the five trading days ended June 8, July futures rose a whopping 56 cents to $4.808.
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