Despite the coldest weather of the season, the futures markettumbled lower yesterday as traders relieved technical overboughtconditions by unloading new long positions. Cash prices, whichslipped for only the second time in eight trading sessions, werealso seen as a negative factor. After opening near the bottom ofMonday’s wide trading range, bears wasted little time takingJanuary down 10.7 cents to settle at $2.522.
For many, the “buy the rumor, sell the event” clichâ€š rang trueyesterday with prices deteriorating even as the coldest weather wasjust reaching the Northeast. The latest price rise got started inearnest back on Dec. 10 when the National Weather Service alongwith several private forecasting agents, first predicted the Arcticfront that has set in across the Eastern two-thirds of the country(See Daily GPI Dec. 13, 1999).
However, Ed Kennedy of Miami-based Pioneer Futures does notsubscribe to the “buy the rumor, sell the event” mentality,favoring instead a strategy of buying and selling based on thelatest six- to 10-day forecast. However, in this case that may notbe so easy, says Kennedy, adding that there is some disagreementbetween weather forecasting models. “Some are looking for the highpressure system located off the Pacific Northwest to stay in placeand continue to redirect cold air to much of the nation whileothers show it gradually dissipating, which would bring warmertemperatures back to the lower 48. In the absence of a clearweather outlook, the market took profits.”
Also of concern for bulls, is the lack of buying demand in theJanuary cash market. “Utilities are closing early for the holidaysand with prices at these levels they are willing to wait untilafter Christmas to negotiate their baseload supplies,” Kennedysaid.
Looking ahead, he believes the market will become preoccupiedwith the storage report today and that could bring about someshort-covering. “I look for a 104 Bcf withdrawal, but there is talkthat it could be even greater. If that sort of speculationcontinues to flourish tomorrow, it will likely fuel more gains,” hereasoned. Nevertheless, Kennedy is unconvinced the strength willlast in the long-run and believes another foray into the $2.60s isjust a selling opportunity in disguise.
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