It wasn’t for a lack of trying, but in the end there was nothing bulls could do to keep natural gas futures prices from free-falling lower Monday. The combination of mild temperature forecasts, negative technical factors, and the continuation of an unimpressive tropical storm season was enough to place bears back at the market’s helm. September futures closed at $4.630, down 24.4 cents or 5% for the session.

After Friday’s long-awaited short-covering rally, traders had high hopes for the market Monday. In an ideal situation, bulls would have returned from the weekend to supportive temperature forecasts and possibly the existence of a tropical storm in the Atlantic. Armed with that information, a test of the $5.00 mark would have been in the cards. As it turns out, however, Mother Nature was not capricious with continued mild temperatures in the forecast and tropics that remain devoid of major storm activity.

According to the latest six- to 10-day forecast released Monday by the National Weather Service, below normal temperatures will continue across much of the eastern half of the country through the middle of the month. Below normal temperatures are also expected along the Pacific Coast, confining the hot air to the Central and Western Plains and northern New England, where the impact on gas demand will be negligible.

While tropical activity has picked up since the end of July, there was little or no strengthening associated with an area of storminess in the eastern Atlantic over the weekend. Market-watchers agreed that the 16-cent short-covering rally Friday was precautionary buying ahead of that system potentially becoming a named system. After realizing the “coast was clear” Monday, those shorts were seen returning to the market.

However, fundamental factors were not alone Monday. Although temperature and hurricane outlooks were responsible for the direction of prices, technical considerations determined the size of the price drop. After reaching a $4.875 high just before noon EDT, the September contract began to spiral lower. Once sell-stops were hit in the upper $4.70s, the rout was on. At $4.63, the September contract finished just above key support at $4.60. In doing so, it notched the lowest close for a prompt-month Nymex contract since last December.

From a technical point of view, the market’s failure was not “what the market did Monday” but rather “what the market failed to do.” Specifically, traders pointed to September’s inability to challenge the $5.00 level as a negative sign. “If prices fail to at least test the $5.00 level, that would be considered quite bearish, and a failure of the correction to unfold in a normal manner. In this case, a retest of $4.60 should take place,” wrote Cynthia Kase of New Mexico-based Kase and Company in a fairly prophetic note to her customers over the weekend.

Kase is not alone in targeting the $4.60 level. Using Elliot Wave Analysis, Craig Coberly of Atlanta-based GSC Energy points to $4.58 in September futures as a key level of support. Though he is bullish in the intermediate term, Coberly recognizes that a close below $4.58 would invalidate this outlook and point to a immediate move down to the $4.40-45 area.

For Kase, meanwhile, a break of the $4.60 level would be devastating. “If $4.60 is broken, and a definitive close below that level does take place, then look for an extremely bearish follow-through with a challenge of the $4.00 level and a continuation down towards $3.60 becoming increasingly likely,” she said.

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