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Friday Advance Belies Potential Technical Weakness
After suffering a 9-cent setback late Wednesday afternoon,natural gas futures held their ground Thursday as traders electedto play it safe ahead of the holiday weekend. The May contractchecked to either side of unchanged, but ultimately finished inpositive territory, up 1.8 cents at $3.073. A narrow 4-cent tradingrange and a modest 54,989 in estimated volume were evidence of thequiet trade Thursday.
Several traders polled by NGI Thursday were still struggling tomake sense of why the market tanked following the release ofseemingly bullish American Gas Association storage data Wednesday.However, one source felt the storage report had “buy the rumor;sell the event,” written all over it because there was such astrong perception that the number would be price-supportive.”Industry expectations were right on the nose with this one. Peoplewere looking for a 20-30 Bcf withdrawal, so the 25 Bcf fell inline. When the market couldn’t move higher, it was an easy sell,”he reasoned.
Another signal that scared some would-be bulls this week was thechoppy price activity that could be chalked up to new longaccumulation followed by long liquidation. After gapping higherMonday, and quickly notching a new life-of-contract high at $3.175,the May filtered lower to settle a half-cent lower for the week.That represents the first time in over a month that the promptmonth has failed to post a gain on the weekly continuation chart.
Another chart feature that could come into play this week is the$3.03-045 daily chart gap created by the May contract on the movehigher Thursday, April 13. Since that time, trading has stayedabove that level, but some feel the market will look to retest itearly next week.
“With the May futures breaking Tuesday’s $3.065 low, they seemto be embracing a further correction to the downside, confirmingthat at least a significant interim top has been made,” the PegasusEconometric Group wrote in its April 20 NatGas Report.”Follow-through to at least the failed resistance at $3.025 couldbe expected, with risk of a test of last week’s $2.94 low as well.”
Another bearish trader acknowledged the possibility of a gaplower open Monday, which would complete a “textbook island reversalpattern” on the daily charts and set the tone for further losses.
On the upside, the market can expect to encounter additionalselling in the $3.15-175 area. Additional resistance is expectedbetween $3.20 and the $3.25 spot high from last October, Pegasussaid.
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