After posting a negative open, natural gas futures rebounded strongly Tuesday to notch its fourth-straight higher close, as both speculative and commercial traders loaded up on long positions in anticipation of the formation of Tropical Storm Isidore in the Caribbean. As it turns out, that buying was enough to press prices to a new four-month high at $3.695. Slipping only slightly to close at $3.679, the October contract finished 24.9 cents above its earlier low and 17.2 cents above Monday’s settle. Estimated at 113,063, volume in the gas pit was extremely heavy.

Commercial traders who were responsible for limiting the market’s upside on Monday with scale-up selling, were seen on the other side of the transaction Tuesday as they covered short positions. That buying pressure, coupled with continued long accumulation by the speculative side of the market, was enough to propel prices up to heavy overhead resistance in the $3.68-69 area Tuesday. The October contract notched an initial high at $3.69 at 11:45 a.m. EDT, only to back off slightly before making one last push up to its new four-month top at $3.695 at about 1:30. Tuesday’s rally breaks the Aug. 26 high at $3.685.

While trader’s risk-to-reward profile certainly favors shorting the market at these lofty levels, that may not be a prudent move considering the uncertainty surrounding the reformation of Tropical Depression # 10. Having strengthened back to tropical depression status after being downgraded to a tropical wave Sunday, TD # 10 was primed to become the ninth named storm of the Atlantic Hurricane Season Tuesday evening.

And although the storm was still in the process of organizing as of yesterday evening, meteorologists at the private forecaster Weather 2000 in New York, were already warning their customers not to underestimate the chances that TD # 10 will find her way into the Gulf of Mexico. “Visually, the location of T.D. # 10 is misleading,” the group wrote in an email alert Tuesday. “Based on convective outbursts, one would think the storm is in between Hispaniola and Jamaica, when in fact the center of circulation is well to the South of Jamaica (about 150 miles South), below 16 degrees North latitude. This is a significant stat because sub-20 degree latitude Tropical Storms in the Caribbean are notorious for entering the Gulf of Mexico. They are far enough South that even the typical Northward re-curvature that occurs at these longitudes still poses a Gulf entry angle.

“We are highly confident that a strong Tropical Storm (or even minimal hurricane at that point) will be crossing the theoretical entry line to the Gulf of Mexico (a line between Cancun and Miami) by week’s end. This would make Isidore the first truly solid Tropical Storm (and possibly Hurricane) to enter the heart of the Gulf during the 2002 Season,” the group predicted.

In daily technicals, October has a serious layer of overhead resistance at Tuesday’s high of $3.695. If TD # 10/Isidore can convert more believers Wednesday, look for a run to the next projected level of selling in conjunction with the May 14 continuation chart high of $3.875. Psychological resistance at $4.00 looms higher, should the market really get going. On the downside, technicians are focused on the market’s recent trading range, which would mean selling at current levels and buying dips down to the bottom of the channel at $3.29.

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