Less than 24 hours after posting a new all-time high for aprompt month, the July contract was hit with massive longliquidation that sent the expiring contract 31.7 cents loweryesterday to $4.369.

Ironically, the trio of storage, cash prices and technicals thathas been chiefly responsible for the precipitous price rise overthe past six months was also at the root of the price slideyesterday. “This market was a little too top heavy after breakingto new highs [Tuesday],” a risk manager said. “Cash did notauthenticate the move higher, and technicals were mixed. It wasanything but a clean break [higher]. When the market reopened[Wednesday] morning, traders had to ask themselves the simplequestion of whether they were more comfortable long or short at the$4.60-65 level.”

As it turned out, that was an easy question for traders toanswer because July notched a high of just $4.62 Wednesday, almosta dime less than Tuesday’s high. Once the market started lower, itwas helped along by options-related liquidation of July futures,the risk manager added. “As the market approached and went throughthe $4.50 level, there was a wave of selling from owners of $4.50call options.”

Although most of the price damage had already been done, therewas still a great deal of anticipation surrounding yesterdayafternoon’s release of fresh storage data. According to theAmerican Gas Association, 73 Bcf was added to underground storagefacilities last week, bringing total working gas levels to 1,567Bcf, or 48% full. The report was quickly dubbed a non-event by themarket because the injection fell so neatly within the 65-80 Bcfrange of expectations. On that news, prices continued to sift lowerthroughout the last hour of trading, and carved out a $4.30 lowbefore rebounding to $4.369 at the close.

Looking ahead, Ira Hochman of New York-based Trot Trading Corp.speculates this could be the beginning of a long overdue marketcorrection. “We have been in a bull mode for some time now, withoutany real retracement. Sure we have sold off, but we were back upthe next day.” What this market needs, according to Hochman, is tocome back and test the June 1 low of $3.80. “That would give us agood foundation to retest the highs,” he reasoned.

Although the $3.80 level is a long way off, bears were alreadyat work last night. In its first appearance as prompt month, theAugust contract was off 5.5 cents at $4.342 in after-hours Accesstrading.

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