After its meteoric rise from a July 25 low of $7.185 to a Monday high of $8.870, September natural gas futures decided to put in a rare and relatively quiet day of trading on Tuesday.
The prompt month recorded a low of $8.53 early on before attempting to climb higher in the afternoon. However, futures could get no higher than $8.680, just short of Monday’s settle. Much like Monday’s session, September natural gas ended up closing a few pennies lower. The prompt month settled at $8.649 on Tuesday, just 3.5 cents lower on the day.
With the market settling lower for a second consecutive session, a number of market watchers wondered whether futures were going through a “topping pattern” or just a regrouping stage. As to the murmurs in the industry that a topping pattern might be occurring, some believe it is too early to say.
“While the market could be seeing a topping pattern, I really think it is in more of a pause right now,” said a Washington, DC-based broker. “We’ve literally been on this tear higher since that July 25 low. I would say that even though we were making newer highs over the last couple of days, we were seeing slight weakness coming in.
“It really is a little early to call this a topping pattern,” he added. “The question is whether this is just a pause…a little consolidation, as opposed to a breakdown. From my charts, the $8.44 level is my uptrend support line, so we are still 20+ cents away from that. I would say until we break through that, I would still call this a pausing pattern as opposed to a breaking down type of pattern.”
The broker noted the bulls’ case still appears firm as there is continued heat throughout much of the country and storms remain a significant concern.
“We have a large entrenched hot pattern that is settling over the Ohio River Valley and most of the East Coast, so the bulls are getting exactly what they need to support their case,” the broker said. “The power of the move that we have been in really doesn’t surprise me given the weather and where the chart patterns were to begin with. We might be in a position to chop sideways for a little bit, but I wouldn’t say we are ready to break down more significantly until we get down below that $8.44 level.”
A prominent industry broker said Tuesday morning that the market may trade lower soon. Tom Saal of Commercial Brokerage Corp. uses the Market Profile in his market forecasting, and his studies show that Thursday, Friday and Monday’s trading exhibited what he calls “topping patterns.” He suggests buying put options and selling call options to take advantage of what he believes will be a market decline.
The hot weather juggernaut rolls on. The populous energy markets of the Mid-Atlantic and industrial Midwest have endured successive frontal attacks of hot, humid weather and this week promises to be no exception. To date, the Great Lakes states of Ohio, Indiana, Michigan, Illinois, and Wisconsin have labored under 623 cooling degree days (CDD) or 132 more than normal. New York, New Jersey, and Pennsylvania have endured 593 CDD or a whopping 156 more than normal.
For the week ended Aug. 13, the National Weather Service forecasts 81 CDD or 30 more than normal for the Great Lakes states above and 65 CDD or 11 better than normal for New York, New Jersey, and Pennsylvania.
Heat is forecast to move east. AccuWeather says the high Tuesday in Chicago of 94 will ease to 88 by Friday. However, Philadelphia’s high of 86 Tuesday is expected to rise to 92 by Friday.
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