Despite a dip in the nearby crude oil market, natural gas futures trudged quietly higher Tuesday as traders wrestled with the contradictory forces of supportive technicals and bearish near-term storage outlooks. It wasn’t pretty, but the April contract did manage to eke out a modest 1.5-cent advance to notch its fifth straight daily advance. It closed at $5.565.

With forecasts calling for mostly benign weather for the next couple of weeks and fresh storage data still a couple of days out, the natural gas market was forced to rely on mostly technical factors Tuesday. Though some market watchers worry that the rebound may have been premature, majority opinion is that prices have notched their late winter low.

For visual proof, chartists need to look no further than the April daily chart, which has plotted out a neat “W” bottom formation over the past six to eight weeks. That chart feature, combined with Monday’s intra-day retracement, has technicians calling for higher prices. “The short-term correction I was expecting appears to have been shorter-term than I expected,” noted Craig Coberly of GSC Energy in Atlanta. “Gas collapsed to a 50% retracement of the rally, then came roaring back.”

However, not every chart-watcher has grown horns. While admitting that the “W” bottom formation is hard to ignore, Tom Saal of Commercial Brokerage Corp. in Miami is not buying 100% into the rally just yet. “This is not a place to try and be a hero. Sure we have a bottom formation on the April chart. But what about the daily and weekly continuation chart? There is no consensus.

“We saw this pattern in the fall. Funds were even shorter then. The market rallied and they lightened their shorts. However, the rebound failed to attract much follow-through buying and prices turned right back around,” Saal continued.

Because of the uncertainty over the direction of the next price leg, Saal suggests both end-users and producers might want to lock in a little protection here. “With implied volatility low at just about 39%, options are the right tool for the job.” A buyer could purchase a $6.00 April call option for roughly a dime… A producer, meanwhile, could lock in some of its supply by buying a $5.00 put option in April for a few cents, Saal said.

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