Pressured by weakness in early morning over-the-counter trading,natural gas futures gapped lower on the open for the second sessionin a row Monday as traders were once again presented with a priceoutlook devoid of bullish fundamental news. However, unlike theprice action last Friday in which prices sifted lower throughoutthe day, yesterday’s market was constructive as prices workedhigher after finding support at the key $5.00 level. The Aprilcontract finished strongly, up 8.7 cents to close at $5.159.

Although predominantly bullish in the medium- to long-term,several sources polled by NGI yesterday were surprised by themarket’s ability to remain above support at $5.00. “Bears hadplanted the seed with last Friday’s sell-off. Anyone long over theweekend had to be nervous heading into this morning’s open. Thenover-the-counter deals were trading below $5.00. Everything wassetting up for another down day. I still cannot believe that wemanaged to bounce back,” a Houston-based risk manager said.

While futures traders will always be able to point to the nextlevel of support or resistance, they rarely have a number with suchmagnetism as $5.00. Not only is $5.00 inline with both the $4.998March final settlement and the $5.04 Henry Hub first-of-monthindex, but it is also psychologically pertinent as a 50% Fibonacciretracement of the all time high of just over $10.

Accordingly, futures analysts agree that the way in which themarket reacts on its next foray to the $5.00 level, could hold thekey to the next price leg. “We have tested $5.00 twice now-on thelast day of February and then again [yesterday]. The third time isa charm,” a trader said.

Looking ahead, another trader believes that cash prices hold thekey. “Usually, during the month of March you have cash pricestrading at a deep discount to futures as gas continues to come outof the ground in a market losing demand on account of moderatingtemperatures…. That is not the case thus far. Futures and cashhave been essentially flat to each other and that indicates to methat new production is not keeping up with depletion (of currentsupply) and demand growth,” he reasoned.

A break below the aforementioned $5.00 level could trigger aslide to the market’s long-standing prior high of $4.60. Resistanceis seen at the top of last week’s chart gap, basis April futures,up to $5.28.

©Copyright 2001 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.