Maintaining the downward momentum from last Friday, the December natural gas futures contract — aided by some rare weakness in the petroleum ring — continued to scout lower price levels on Monday, recording a low of $7.980 before closing out at $7.999, down 41.9 cents from Friday.

While natural gas was plumbing lower price levels, crude futures took a day off from creating new record highs. December crude on Monday reached a low of $93.90/bbl before settling Monday at $93.98/bbl, down $1.95 from Friday.

Much has been made of the on-again/off-again relationship between the natural gas and crude futures markets. While there is no real direct linkage other than the reflection on heating oil values, large moves in crude or natural gas have been known to lend direction to the other market.

“Crude and natural gas indeed headed lower together on Monday, but the hit that crude took was nothing in comparison to what natural gas took on a percentage basis,” said a Washington, DC-based broker. “We would have had to have been $4 off in crude to match up. There really was a general weakness across most commodity classes Monday. The stock market had looked pretty weak, but was making a rally toward the end of Monday.

“Natural gas futures got slammed on Monday. I thought the $8.250 level would hold, but that really turned out to be untrue. The next question is how much further we can gouge down. We are kind of back into the $7.500 to $8.250 trading range.”

Below this point, the broker said the market might have a $7.500 test in it. “I am not sure we get all of the way down there this time, but this market could try before the next rally. Momentum-wise I am still bullish, even though I am behind the eightball now. I still think there has to be a little more of a push back before you give up and say that we are going to try to make a new low.”

The broker added that there appeared to be a rebound attempt in the middle of Monday’s session, “but it failed pretty mightily.” He noted that it looks like natural gas futures might be back to directionless trading for a time.

An East Coast trader said natural gas futures has recently been a “very difficult market” that has been “frustrating” to trade. “Natural gas continued lower Monday and unlike the past few sessions, the petroleum markets were supportive of the down move,” he told NGI. “Some of the petroleum contracts fell on Monday convincingly for the first time in a while. My stance has been that as long as the liquids move higher, it will be very difficult for natural gas to fall a whole lot lower due to the Btu ratio. I think we saw just that with the let-off in petroleum on Monday.”

Some traders are balancing their trading books on the end of a seasonal trend and the onset of early-season cold. “Last week natural gas reached the most overbought RSI [Relative Strength Indicator] reading since the $8.619 peak back in August 2006,” noted Walter Zimmerman of United Energy. In addition, overbought/oversold surveys of traders as measured by the Market Vane “Bullish Consensus” hit their highest reading since January 2006.

“Friday gave a bearish RSI divergence signal and a bearish candlestick pattern, and with November the epicenter of the seasonal peaking window the overbought indications just cited gain extra importance,” he said in a note to clients. Zimmerman’s first support line in the December futures contract was at $8.225, but the next one comes in at $7.920.

In spite of the weakening technical picture, the near-term weather outlook is squarely in the hands of the bulls as a broad section of the center of the country is forecast to turn chilly.

“Chicagoans will experience the coldest day of the fast-vanishing fall season Tuesday with highs failing to warm out of the 30s and northwest winds possibly dropping wind chills into the teens tomorrow morning,” said WGN Weather Center meteorologist Paul Dailey. He added that to the north, howling winds off Lake Superior are expected to develop heavy lake-enhanced snow over the Upper Michigan Peninsula, dumping as much as a foot over higher inland locations Monday night and Tuesday. The effects of the cold front will be felt all the way to the Gulf of Mexico, with daytime highs dropping 20-25 degrees from Monday to Tuesday over a wide area from Texas to the Carolinas, he said.

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