Led by the September contract, which dropped 8 cents to $2.956, natural gas futures slumped Thursday as forecasts for moderating temperatures gave bears the confidence they needed to pressure prices. However, Thursday was not a complete disaster for bulls. Instead, some viewed the price action as just another range-bound trading session in which the market failed to break beneath stubborn support in the $2.90-95 area.

Unless you live in Coastal California or Alaska, chances are it was almost unbearably hot in your neck of the woods yesterday. But as is usually the case, futures traders were one step ahead of the game, electing to look at the weather forecasts rather than the weather outside their windows. A front was expected to invade the Northern Plains overnight Thursday, bringing cooler weather, storms and rain relief to a section of the country that has sweated through temperatures in the mid- to upper-90s this week.

While some traders are hesitant to sell this market ahead of potentially bullish storage data to be released next week, others feel that forecasts for moderating temperatures this weekend will give sellers the opportunity they need to push prices through support. “If the natural gas market is unable to rally now, it’s hard to see how it ever could,” said Tim Evans of New York-based IFR Pegasus. “It could earn a second chance if the storage injections for this week prove low enough. Although, as we’ve noted before, the comparison figure from last year drops to 52 Bcf, making it that much harder to trim the market’s 298 Bcf year-on-year-surplus. There are an abundance of speculative shorts in this market vulnerable to a rally, but without a bullish storage trend or even a single bullish report, they may have remained impervious to attack.”

In an attempt to take advantage of this, Evans likes the short side of the market with a protective buy stop at $3.04 (September) to limit his risk. If the market manages to rally, he looks for a second buy stop at $3.12 to open a long position.

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