The futures market made gains for the second day in a rowTuesday on what many sources are calling a bit of a technicalcorrection in an otherwise down market. That left the Septembercontract hovering within striking distance of the downtrend linethat has thwarted upward momentum since July 9. September finishedup 2.6 cents to settle at 1.895.

A California marketer feels Monday’s reversal was significantbecause of its timing. “After closing on a sour note last Friday,the market opened Monday and immediately tested support in the$1.80 area. However support held and nobody wanted to be a sellerat that level. That opened the door for some cautious new longs toenter the market, of which I am one.” Furthermore, he points outthis week is the anniversary of the beginning of the bull run thatbegan last August. During the first 6 trading days of the August1997, the market gained nearly 35 cents, kicking off the great bullrally of 1997 which peaked at $3.85 on October 28 of that year.

Analysts at Energy Security Analysis Inc. (ESAI) are bullish aswell, but take a step back to look at longer term marketpathologies. They target three regimes that grouped gas pricessince the natural gas futures market began in 1990. The firstregime lasted until spring of 1992 and was characterized by lowprices and less day-to-day volatility. The second regime lastedfrom the summer of 1992 to the summer of 1995 when prices movedinto the $1.50-$2.50 range. And the third regime, from the fall of1995 to the present saw prices migrate to the $2.00-$3.00 area.

ESAI noted in the long run, prices of most freely tradedcommodities, are normally distributed around a defined mean.However, natural gas prices “do not show a normal distribution, butactually exhibit a double spike around a mean of $1.98.” Then bystripping out regime 1 and 2, the ESAI found prices during thecurrent regime average $2.43 and remain above $1.90 for 95% of thetime. “This means that prices around $1.95 are just outside thefive percentile lower tail of the current price regime and, in allprobability, will rise from here.”

If the market can move higher it will face immediate resistanceat the$1.91-915 level. Above there the market can expect minorselling in the $2.00-04 area. Support is clustered at $1.78-81, achartist advised.

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