November natural gas futures retreated Friday as fund and managed account traders made technically based sales, momentarily taking some money off the table while awaiting a chance to reenter the market on the long side next week.

November futures fell 19.3 cents to $4.770, and December shed 14.9 cents to $5.590. November crude oil rose 8 cents to $71.77/bbl.

“It looks like some of the larger fund players gave up on a portion of their long positions, maybe just for the weekend. I’m thinking the market will be supported on dips,” said a New York floor trader.

“If we can open up Monday and take a dip down to the mid $4.60s, I think the market will get supported again; $5 is still there to be taken out, and I think Friday’s trading was technical rather than fundamental. If there were any little bit of fundamental news that would be enough to get this market going [higher].”

Others took a more fundamental viewpoint of the day’s decline. “To some extent, we viewed Friday’s hefty selloff as a storm-evaporation process given a continued lack of significant hurricane threat in the GOM [Gulf of Mexico] region,” said Jim Ritterbusch of Ritterbusch and Associates. “We also viewed it as somewhat of a delayed reaction to yesterday’s seemingly bearish weekly storage report. But regardless of the impetus behind the selling, the easy answer to any given day’s selloff can still be provided by a record supply level that will soon be bumping up against storage capacity limitations,” he said.

Followers of trading systems report sell signals and a near-term outlook likely to see lower natural gas futures prices. Traders following the Market Profile trading strategy see continued weakness. “We have areas of negative [price] development in the $4.70 to $4.75 area and also $4.00 to $4.20 [November futures],” said Julio Sera, a broker with Hencorp Becstone Futures in Miami. He added that those areas would present tempting price targets once November futures commence trading Monday.

According to Market Profile adherents, areas of negative development are of great importance as they represent areas of that have not been “filled in” by trading. The Market Profile presents intraday price activity in the form of a distribution, and the failure of the day’s trading to round out the distribution creates gaps, or areas of negative development, which are eventually filled in subsequent trading, according to the methodology.

Sera also pointed out that a second trading methodology they use, Capital Flow, or Cap Flow, “has been giving sell signals all week.” Cap Flow is a subset of the broader Market Profile methodology and Sera suggests prices could fall another 7 cents to $4.70 or even further down to $4.00, the areas identified as negative development. What that means is that the market ought to trade in and around those areas as it fills in the zone of negative development.

Cap Flow attempts to categorize market activity in both a vertical (price) dimension and horizontal (time) dimension. By analyzing the relative components of vertical and horizontal market activity, Cap Flow can be used to forecast market direction, its adherents contend.

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