Natural gas futures rose modestly in light, noncommittal post-holiday trading Wednesday. Traders noted that it was unusually quiet for an options expiration, and in spite of bearish fundamentals no one was willing to aggressively sell the market for fear of getting caught on the wrong side of a weather-driven price advance. Longer-term traders hint at a market bottom.

January natural gas futures gained 2.1 cents to $7.046 and February added 1.9 cents to $7.164. The January contract expires Thursday.

“Wednesday was unusually quiet for an options expiration,” said a New York floor trader. He added there was some activity after the close, but “not a lot of EFS (Exchange of Futures for Swaps) went today either.” Near the end of contract expiration traders will often trade out of futures contracts, which if held to expiration have a delivery requirement for swaps contracts that can be financially settled.

“The market is in a holding mode. In spite of the weather, it is December and traders are concerned about getting caught short. The weather could turn around and the market rally $1 just on panic,” the floor trader said.

One group that is not concerned about getting caught short are the noncommercial accounts. The Commodity Futures Trading Commission reported Friday record short holdings of noncommercial accounts, typically funds and large speculators. Those accounts held net short positions of 96,357 contracts as of Dec.18, up from 92,881 contracts a week earlier.

Some traders see the large net short open interest as bullish. “At some point you are going to run out of sellers,” said Tom Saal of Commercial Brokerage in Miami. He added that the market has “all this bearish news and the market has had bearish news for quite a while. There wasn’t much of a hurricane season, a moderate winter has been forecast, and the month of November was mild. I don’t know how much more bearish news there is.”

One more piece of bearish news surfaced on Monday when the National Weather Service (NWS) released a forecast calling for lower-than-normal heating requirements. The NWS expects lower heating demand in large energy markets this week. For the week ended Dec. 29 New England is forecast to receive 206 heating degree days (HDD), or 59 fewer than normal, and New York, New Jersey and Pennsylvania are expected to experience 188 HDD, or 58 fewer than normal. The industrialized states of Ohio, Indiana, Illinois, Michigan and Wisconsin are expected to shiver under 227 HDD, or 52 fewer than normal.

“The market has absorbed all this bearish information and the piling on by the funds. How much lower can it go? Maybe it’s as low as it is going to go,” Saal said.

In his work with Market Profile, Saal notes that the inability of the market to trade decisively below $7 has set up a period of “horizontalness. The rule of thumb is that the longer the horizontal period, the more the market should reverse higher. The market has stopped trending lower.”

One method of determining just how far the market might advance using the Market Profile methodology is to count the “time-price opportunities” (TPO). The TPOs are represented graphically by letters and accumulate in a horizontal pattern over time as markets fail to trend. “We need 40 to 45 TPOs to change from a period of horizontal to vertical (higher prices), and we are not there yet,” Saal said.

Market Profile was originally developed by legendary Chicago trader Peter Steidlmayer and applied to grain trading. It is a form of technical analysis in that the market information derived from it is mechanical and calculated from a firm set of market parameters and definitions. The most significant difference between Market Profile and conventional technical analysis is that technical analysis attempts to determine market direction from historical data, often in the form of daily bar charts, but Market Profile uses the evolving market as its foundation to ascertain future market direction.

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