Spurred by losses notched in overnight Access trading, the natural gas futures market continued to free-fall Monday as fund traders re-acquired their short holdings just as quickly as they had exited them earlier this month.

With that the November contract finished at $4.772, down 26.4 cents for the session and slightly more than a dollar beneath its Oct. 10 high at $5.80.

Heading into Monday’s session, traders agreed that some residual selling was likely following last Friday’s 37.5-cent decline. Most market watchers, however, held the belief that any further losses would be minimal and the market would find at least some buying in conjunction with the $4.91-93 area. As it turns out, support in the $4.91-93 area never had a chance Monday. The market opened at $4.90 and dropped 15 cents to $4.75 in the first 15 minutes of open outcry trading Monday.

“Funds were heavy sellers Monday,” said local trader Eric Bolling (RBI). “Their ability to move markets is exaggerated since many of the speculative [industry] trading shops have either shut down or severely curtailed their programs. They used to be the balancing factor in this market. It was the Reliants, Williams and the Dynegys that would buy against the fund selling. With those guys out of the market, the speculative trading funds have gone unchecked,” he said.

In many ways, local traders exacerbate the price move, he continued, “Sure we provide liquidity, but it’s not the same type of liquidity that the trade spec would provide. It is not long-term. We are looking 15-20 minutes, maybe an hour ahead. Trade spec could hold a position for days.” What’s worse, Bolling continued, is that if the locals buy against a fund sell-off and the market continues lower, they are forced to sell-out of their position quickly, or be faced with a margin call. That selling only serves to fuel the fire. “We’ve been getting run over [recently],” says Bolling who has curbed his trading appetite down from 6,000 spreads to 1,500-2,000.

Looking ahead, traders are mixed as to whether the market will continue lower Tuesday. Broker Jay Levine of New Hampshire-based Advest Inc. is cautiously optimistic and believes the next buying thrust could come from end-users. “My guess is more hedge buying will take a lesson from the past two weeks, and consider this decline a godsend.”

However, any rally would have to come in the face of undeniably bearish fundamentals. The latest six- to 10-day outlook calls for normal temperatures in the populous East and the degree day counts for last week suggest another hefty injection this Thursday. Early talk is that the EIA will say that inventories increased 75-80 Bcf last week, well above the 51 Bcf five-year average.

The market has been punishing on those who try and pick a bottom and this may be another example, chipped in Bolling. “I would not try to be a hero in this market just yet.”

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