After testing higher in the morning, May natural gas futures used Monday afternoon to feel its way lower. However, the prompt month was rebuffed by the $6.87 to $6.89 level for the second time in three days, leading May futures to crawl higher to a $6.95 settle, down 4.7 cents.

“The rally off of that $6.875 was pretty decent, and crude tried to break $50/bbl a couple of times during the day, but ultimately ended up settling just above,” a Washington, DC-based broker said. “My belief is that as long as crude can hold the $50 level, natural gas will probably hold the $6.88 level. I would expect gas to trade between that $6.88 to $7 level as long as crude sticks around that $50/bbl level.”

May crude did indeed break the psychological $50/bbl level with a trade at $49.85. However, the sub-$50 trip was short-lived as the contract ended up settling at $50.37, down just 12 cents on the day.

As for the next move for May natural gas, the broker said he believes action lower might not be in the cards.

“If May natural ends up getting below $6.88,” the broker said, “the $6.80 level is another fairly significant level from a couple different technical measurements. I would say the zone with $6.88 at the top and $6.80 at the bottom is a pretty significant range. Personally, I wouldn’t sell it until we broke through $6.80 because the 15 cents isn’t that much to play for with the possibility that $6.88 holds as a double bottom here and we rally out of it.”

From what he has seen on the charts, the broker said he gives the $6.88 level 60-40 odds in favor of holding.

The broker added that the Commodity Futures Trading Commission’s Commitments of Traders report last Friday wasn’t very indicative of the market’s next move. “The Commitments of Traders report had a sort of minor flip-flop from slightly long to slightly short, but who knows where that all ended up by the end of the week, due to the couple of days lag on the data,” he said. “Its not a big commitment in one way or another. I think there might be some buying or selling energy still out there to be deployed. It just isn’t there yet.”

Market technicians have a good idea of what it would take to convince them that the seasonal surge which took prices to their highs of April 4 will continue “The typical pre-season cooling degree day rally starts in early February and peaks into mid-May,” said Walter Zimmerman, vice president, United Energy in New York. He pointed out that prior to this year the earliest peak for this pre-season rally was March 28, 2001.

“If the [$7.904] high of April 4 was the pre-season rally peak, then the 15-year average decline from there would be a 31.9% loss in spot contract value to the $5.380 area into early August. Zimmerman also uses wave analysis in his price forecasting, and he said that the pattern of the decline from the April 4 highs is indicative that April 4 was a market high.

He added that the post April 4 pattern indicates that the next rally will be a bear market correction. “If the next rally is from the $6.965 area then major resistance becomes the $7.550 to $7.700. In order for the bullish advance from the January lows of $5.71 to remain intact technically, $6.180 must hold,” he said.

Weather conditions, at least in the high cooling-degree-day markets of the Southeast will not be very supportive of a continuation of any technically-derived pre-season rally. AccuWeather says that it will be difficult to find a more pleasant area of the country than the Southeast. High pressure over the region will produce bright sunshine and low humidity levels. Most locations will be in the mid-70s to low 80s during the afternoon and the mid 50s to 60s at night. This nice weather will likely continue through much of this upcoming week as high pressure remains in control.

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