Whether or not the down-move has run its course remains to be seen as December natural gas Tuesday failed to add to Monday’s gains. After putting in a low of $11.500 and a high of $11.980, the prompt month ended up settling at $11.793, down 8 cents for the day.

December natural gas failed to find any real traction on Tuesday after a round of short-covering on Monday left the contract 45.8 cents higher at $11.873.

“There were no great commitments in either direction on Tuesday,” a Washington, DC-based broker said. “There was a sell-off in the morning, but it didn’t even look to threaten the $11 level again. Then midday, we had that rally for no particular reason. The only thing that really could have boosted the market a bit was the Energy Information Administration’s short-term outlook [see related story], but that was released much earlier in the day. We ended up closing in the middle of the range, so it was largely an uneventful day.”

The broker noted that there was very light volume Tuesday, so the jury is still out on whether this down-move is still intact. “We deserved to have that short-covering rally Monday,” he said. “We had been down so long and so hard for a number of days, so at some point in time someone had to come in an take some profit.”

Whether this turns back into an up-move is a whole different story, he said. “I think that is hard to imagine given the lack of weather that is out there. I don’t think the down-move is broken yet. I think it is still intact and it is going to take more than a short-covering rally and a follow on day with light volume to convince me that this is a new move up here.”

However, the broker noted that looking at the overall picture, natural gas futures is still qualified as a bull market. “I think this move lower is still classified as a correction within a bull market until we take out the pre-Hurricane Katrina gap down at $10.080,” he said. “We would have to settle below that to officially — in terms of technical analysis — close the gap. I don’t know if we will get there. We might end up running out of benign weather on the calendar before that happens. There is definitely some big-time support just under the $11 level as well.

Monday’s meteoric advance caught many traders by surprise, and although December futures advanced over 84 cents from the $11.03 low, traders were suspicious of the advance.

“Locals liked the market and were bidding it higher. There didn’t seem to be any resistance, and there were one or two traders who were buying in small five and 10 lots,” observed a New York floor trader on Monday. “There was a definite lack of trade and commercial orders, and the locals pretty much had their way with the market.”

He added that the locals were also trying to sell the idea of a bullish weather report, but “I could never get any confirmation of that story. I think they were just talking their own position,” he said.

Others were caught off guard as well. “The magnitude of the price move remains astonishing. A net build in storage this month is still considered quite likely,” said Kyle Cooper of Citigroup.

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