Natural gas futures tumbled lower in moderate trading Friday on the New York Mercantile Exchange. Weak overnight trading set the stage for a sharply lower open and when the opening bell sounded, prices had already registered an 11-cent loss.

At that point trading was conducted primarily by local and short-term traders willing to trade for small gains. Short term traders suggest that further selling may be renewed on Monday if the market falls below key technical support levels. A slightly weaker open is also expected Monday.

The September contract was down 12.4 cents to $5.588 on Friday and the October contract skidded 10.9 cents to $5.728. “Today’s trading was dominated by local and short term traders and there was a lot of attention paid to the winter spreads,” said a New York floor trader. He said traders are now looking at $5.525 as a key area for technical support.

“When the market opened this morning it was surprising that there were not many stop loss orders that went off and there wasn’t much fund and managed account activity either,” he said. Typically traders eager to purchase contracts at lower prices will submit bids below the market in anticipation that market weakness will “fill” their orders, but that was not the case Friday.

Soaring crude oil prices in the adjacent trading ring earlier in the week (crude lost ground on Friday) did not deter gas sellers from their appointed rounds. “The natural gas traders still watch the crude oil, but they don’t follow it like sheep like they used to,” the floor trader said. “For Monday I expect prices to open a couple of cents lower.”

If prices are able to open lower and test the $5.525 support area, there is the possibility that [sell] stop loss orders could be touched off, thereby generating further selling, he said.

The significance of a stop loss order is that if the price is touched, it becomes a market order (to be executed at the best available price) rather than an order to buy or sell at a specific price. Such orders are often used as risk management tools rather than being indicative of a measure of value.

The trader also noted that the funds and managed accounts have had a rough time in recent trading. “The funds are now on the short side of the market, but they had been getting pretty beat up earlier. The past couple of weeks their market signals had been going off and they would end up exiting their trades with a 10 cent loss or so.” It now looks like they have short positions in the money, he said.

Market bulls seeking redemption are now getting a little less support from tropical storm forecasters. Seasoned hurricane forecaster Dr. William Gray of Colorado State University has revised his hurricane forecast downward for the remainder of the Atlantic tropical season. He has dropped his estimate to 13 storms from an earlier forecast of 14. “We expect storm activity in August and September to be above average, however October is expected to be below average,” Gray said.

Fewer forecasted hurricanes notwithstanding, others see little room for natural gas futures to work lower. “I don’t feel that we will drop substantially; it’s hard to imagine natural gas prices falling much more with crude oil where it is,” said Jim Rollyson, analyst with Raymond James in Houston.

He pointed out that last year going into September natural gas dipped to $4.50 briefly, and it tested that level in October before weather turned cold and prices shot back up. “At that time, crude oil was in the low $30s, so I find it hard to believe that natural gas prices will dip much more,” he said.

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