Despite constructive gains in both the cash market and crude oilfutures market and following a string of gains in seven of the lasteight trading sessions, natural gas futures gave back a nickelyesterday as traders weighed in on the extremely technicaloverbought condition that existed in the market. And althoughTuesday’s modest retreat did little to satisfy those overboughtconditions, analysts question how much further the market will fallbefore buyers step back in.

For the second day in a row Tuesday the market rallied, thenretreated on the open. But while it ambled higher throughout therest of the session on Monday, it tumbled lower Tuesday, led by theApril contract, which slipped 5.1 cents to finish at $2.799.Estimated volume was moderate with 76,372 contracts changing hands.

Sources close to the natural gas pit yesterday morning said thepyrotechnics were caused by a standoff between locals eager to pushthe contract to new highs and commercial traders unwilling to letit happen. As evidenced by April’s new life-of-contract high at$2.88, locals were successful, but it may have come at a pricebecause once the market started back down a new seller entered thefray. “We saw good selling [Tuesday] from discretionary fundslooking to take advantage of the price move,” said Ed Kennedy ofMiami-based Pioneer Futures. These are not your classic black-boxtrading funds — these funds actually have an individual who isresponsible for making decisions, he explained.

Fund traders, whether discretionary or hedge, are often blamedfor the wide price swings that accompany natural gas futurestrading. Weighing in with large capital resources, these tradersuse primarily technical decision-making tools to tell them when tobuy and sell. Because many of them use some of the same devices,the buying or selling is oftentimes magnified, as many enter themarket at once. However, despite prices approaching $3.00, thesenon-commercial traders have been notably absent from the market.According to the latest Commitments of Traders report by theCommodity Futures Trading Commission, non-commercials were net longonly 10,002 as of Feb. 22 compared to nearly 60,000 during theprice rally last August. The CFTC will release its next reportFriday afternoon, which will include open interest data throughTuesday.

However, despite the reemergence of non-commercial sellers,Kennedy remains bullish. “There [exists] a lot of unfilled buyingunder this market. We may test the $2.75 level or possibly $2.66 ona correction, but I cannot see a move back to the upper $2.50sanytime soon.”

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