Trying to expand upon the upward momentum from Tuesday, March natural gas futures explored higher Wednesday morning. However, after bumping up against the $6.26 level, the prompt month retreated, locating support at $6.10 before settling at $6.165, relatively unchanged from Tuesday.

With the back and forth trading patterns seen over the past few days, some market watchers say the market might be in the middle of establishing a bottom.

“After Monday it looked like we were heading back down to test the $5.77 level, but then Tuesday staged a very impressive rally,” a Washington, DC-based broker said. “Then despite a strong surge higher in the morning Wednesday, we ended up basically unchanged. In the Japanese candlestick school of charting it was a ‘Doji,’ which indicates a pause in the market and some level of indecision.”

He noted that when a market has a decent range and closes unchanged it means that there were a whole lot of traders pushing the market back and forth with no agreement on it being a bull or a bear. “Basically, traders on Wednesday said ‘let’s call the whole thing off and put it back in the middle.’ It sounds silly, but this is real money. Neither the bulls nor the bears could gain control of this market Wednesday.”

The broker added that with all of the recent warm weather and the current level of gas in storage, it still appears that prices can’t get any traction to head downward.

“As this move chops sideways here what happens from a technical point of view is that moving averages begin to cross over from negative to neutral and perhaps from neutral to positive (bullish),” he said. “The rate of descent has slowed so much that this oversold condition that we have had basically since this selling wave started back at the beginning of November has now been paused for almost a full month.

“I find it hard to believe that a mechanical fund system is going to be initiating new shorts given what has been going on the past month,” the broker elaborated. “I find it possible — and likely — that the funds are liquidating waning short positions that they have had on since the middle of December up at the $7.50 level. It has now chopped around long enough that they are saying, ‘It ain’t going down much more, why not take the money?’ I think this is really a basing or bottoming move that we are seeing. It is looking stronger and stronger as we go along.”

Looking to natural gas storage report Thursday morning for the week ended Feb. 4, the broker said he is expecting a withdrawal of 159-169 Bcf. The Energy Information Administration’s report for the week will be compared to last year’s 227 Bcf pull and the five-year average withdrawal of 164 Bcf.

Citigroup’s Kyle Cooper said he believes the report will reveal a withdrawal of 160-170 Bcf. “A withdrawal within our range would in our opinion confirm an ‘averaging’ of the last two weeks reports.”

Noting that most expectations are centered around a 150-160 Bcf pull, Advest Inc.’s Jay Levine said that while he is looking for a 150 Bcf withdrawal, the real news in the report is whether or not there will be a revision of last week’s 188 Bcf withdrawal.

“Opinions vary whether you’ll see an upward revision to last week’s EIA number and the real surprise would be if they did revise last week’s number [downward],” Levine said. He continues to see the $6.10 level as support for natural gas, noting that he believes the price direction will likely be up — with a few speed bumps along the way.

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