One day after absorbing the fact that a bearish 106 Bcf was injected into underground storage for the week ended July 6, August natural gas futures on Friday sprung higher as traders covered shorts ahead of the weekend. The prompt month reached a high of $6.720 before settling at $6.662, up 16.5 cents from Thursday’s close and 21.8 cents higher than the previous week’s finish.

Thursday’s 106 Bcf build, which included a 10 Bcf reclassification from base to working gas, exceeded most industry estimates, which had been looking for a build in the 80 to 95 Bcf range. The 106 Bcf addition also came in well above last year’s hefty 86 Bcf build and the five-year average injection of 96 Bcf.

While noting that there was a “fair share” of short-covering taking place on Friday, one Washington, DC-based broker said the real action took place Thursday. He added that the market’s recent activity has read like a typical five-wave pattern known as the Elliot Wave theory, consisting of three waves in the dominant market direction interrupted by two correcting waves.

“Thursday’s activity was more interesting than Friday’s session,” the broker said. “We had that big knee-jerk down in natural gas futures on the bearish storage number, but we recovered for most of the rest of the session. It wasn’t a perfectly satisfying selling climax, but it was in the neighborhood of one. Subscribing to the Elliot Wave theory, we have finished the very powerful wave three down and are now in some sort of wave four correction. The question is will we see a final fifth wave down or are we just sort of going to meander and then eventually start moving higher. I am moving closer to the camp that believes we might be putting in a decent bottom in here in the $6.300 to $6.400 area.”

The broker added that the real question is whether the market will see one more test down. “The bearish indicators have been getting less and less so over the last two sessions. Before, I would have said we have a 75% chance of having a fifth wave down, but now I think that chance has moved to a 50% shot,” he said. “It has been a heck of a run on the downside, but all things come to an end. I’m getting ready to be bullish, but I’m not there quite yet. Summer heat and storms are still ahead of us, the economy is doing great and who knows…we might reinvent our fertilizer industry here, which depends on natural gas. Natural gas prices are way under even No. 6 oil, so we are at the point where anyone that can switch fuels should switch fuels.”

Other market technicians who follow price movements as a series of waves suggest there are two interpretations of the recent price action, but in either case the market appears to eventually be headed lower.

“Thursdays price action suggests two possible wave count interpretations,” said Walter Zimmerman of United Energy. In his first case August futures should have peaked and reversed lower on Friday from the $6.640-6.735 zone derived from his short-term wave analysis. “In the other case, natural gas is still in the wave four correction and has not begun the wave five down yet. In this case, natural gas should meet major resistance into either $6.600 or $6.790. In either case our daily trend is peaking.”

If this is indeed a wave four correction, natural gas prices would continue lower in a final wave five. Zimmerman currently places technical resistance to further advances at $6.640 and $6.735.

Others are looking for a market bottom. Tom Saal, in his work with the Market Profile, suggested that in Market Profile parlance the week’s activity shows a “neutral week pattern” and a potential bottom. He expects August futures to test “value areas” at $6.377 to $6.484 followed by $6.683 to $6.840. “Buyers be ready,” he said in a note to clients.

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