Shrugging off Thursday’s expiration-day sell-off, natural gas futures rebounded Friday, as traders took their cue from cold weather expected over the weekend and stronger cash market prices. The newly-crowned spot month February received the biggest buying boost, advancing 15.5 cents to finish the week at $2.774. Estimated volume of just 53,169 was evidence many traders elected to remain on the sidelines ahead of the weekend.

Bulls at Nymex were quick to react Friday as news trickled down to the pit that gas destined for New York City was commanding $5.00 or more. After beginning the morning trading session unchanged in the mid-$3.30s, Transco Zone 6 NY prices rocketed during the second and third hour of cash trading Friday as utilities scrambled to procure supplies for the cold weekend (see related story this issue).

Transco deals were reported to NGI as high as $5.50 Friday. And although it is difficult to make the case that a spike in physical prices during the last few days of December can or should have an impact on February futures, the rally Friday did serve as a reminder that natural gas is a weather-driven market, especially heading into the weekend. Witness the fact that during the month of December, the January contract never lost ground on a Friday.

For Jay Levine of New Hampshire-based Advest Inc., however, the market’s choppy trading activity does not come as a surprise. “I have been calling for and fully expected a weather-induced rally. In the long-term I remain bearish, but I do not rule out brief spikes that could test the $3.00-02 area,” he said. However, Levine views any such rallies as selling opportunities and advises his clients to look to sell $2.80 and $2.90 call options to take advantage of this $3.00 ceiling.

“Resistance at $3.02 held beautifully and people took advantage of the selling opportunity. Sure, the cold weather is upon us now, but how long can it last? I would rather be a scale-up seller here than a buyer,” he said. For Levine, the $3.02 level is pertinent because it represents a 67% retracement of recent highs and lows at $3.44 and $2.17 respectively.

Tom Saal of Pioneer Futures in Miami agrees that it makes sense to continue to sell rallies. However, he endorses this strategy only as long as the market retains its winter premium. Henry Hub cash prices averaged about $2.65 Friday, more than a dime below February futures.

In daily technicals, support exists at $2.58 and $2.407, according to Saal. Resistance, on the other hand, is seen at $2.861 ahead of February’s recent Access trading high at $3.034.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.