February natural gas futures managed to rebound 13.8 cents to close at $4.780 on Wednesday, but market experts were quick to put the brakes on any bullish optimism. Even with brutal cold lingering in a number of important gas-consuming regions, most traders were quick to note that the slumping economy remains the lead story in commodity trading.
Even though Wednesday’s action on paper showed a nice bounce off Tuesday’s $4.570 low for the downtrend, Hencorp Becstone Futures LC broker Tom Saal said $4.600 represents a crucial pivot point and he wasn’t willing to bet that Tuesday’s low would hold up under the current market dynamics.
“We are still headed lower and I don’t see a whole lot out there right now to turn this thing around,” he told NGI. “As I have been saying for some time, the $4.600 price level is a big number. We aren’t really bouncing away from it despite the chilly temperatures. So far the market has been able to handle the cold. We are going to need some other factor to come in and push this thing higher.
“The trend is your friend…and the trend is down,” Saal added. “I haven’t seen anything that says we’ve seen the bottom. The nearly 14-cent gain Wednesday doesn’t change anything. Market Profile-wise, Wednesday was neutral. I think we will continue lower until I see something that says we’ve turned the corner. We are approaching the peak of winter. If the weather starts to moderate, the weakness will continue. However, if it stays cold, we will draw down these inventories, which could change the fundamental situation.”
Cycle analysts and adherents of retracement analysis have to go all the way back to the early 1990s to establish a reference point to determine natural gas futures’ next move. Analysts at United Energy are looking at the long advance from the all-time low of $1.020 that gas futures reached in the early 1990s to the post-Hurricane Katrina high of $15.780 charted in December 2005 and calculating a retracement of that advance. Their next target to the downside is the $4.493 to $4.090 area. Candlestick patterns, however, show a potential bottom, but “confirmation is needed with a rally. We suspect any move up will be a short-lived bear market correction or at worst [for the bears] another period of congestion,” the company said.
Fundamental traders are also anticipating lower prices. “Price action in the past couple of sessions is sending off some strong signals that the $5 mark may be out of reach in offering fresh selling opportunities,” said Jim Ritterbusch of Ritterbusch and Associates. He added that his firm was lowering its suggested entry point in March futures to the $4.800-5.000 zone in anticipation of an eventual price decline toward the $4.250 area.
Traders looking for fresh inventory news Thursday morning will have to cool their heels for one more day as the Energy Information Administration will release the storage-change number for the week ended Jan. 16 on Friday at 10:30 a.m. due to the holiday Monday and the presidential inauguration Tuesday.
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