After briefly testing the downside early Friday, January futuresclawed their way higher and briefly broached the $2.00 level in theafternoon. But a late selloff ensued, which chased prices back downto settle at $1.978, a 1.9 cent gain for the day. Estimated volumewas 72,807.

Many sources polled by NGI were surprised by the futuresstrength in the face of lower cash market prices. Henry Hub pricesfor the weekend averaged $1.01, down 18 cents for the day andnearly a dollar lower than the spot January contract. But a Gulfmarketer was unfazed. “Cash prices were lower because of a purelack of weekend demand and the threat of operational flow orders onmany pipelines. This is a weekend-only phenomenon, and cash pricescould be as much as 30 cents higher on Monday.”

But will futures prices trend higher early next week as well?Tom Saal of Miami-based Pioneer Futures, who has agreed to speak atGasMart/Power’99 in Dallas May 10-12, says “yes,” citing forecaststhat call for cooler temperatures by the end of this week. But heremains skeptical futures can hold onto those gains for long. “Thiscould be another case of traders buying the rumor and selling thefact. We saw prices spike ahead of Hurricane Georges, but whenhurricane force winds were beating down on Mobile Bay, AL., pricesactually came off. Unless we get severe cold and freeze-offs, Iwouldn’t bet against the trend.”

And that trend is still down says Alan Kaufman, a money managerwith Princeton, NJ-based Trilogy Capital Management, adding thatfunds sold short before the recent downswing. “[Fund Managers] lookat momentum indicators to try to identify when the market is goingto change direction. This allows us to get in early to make themost of the price move.” Kaufman, who also has agreed be a speakerat GasMart/Power’99, remains unimpressed by the futures market’sstrength late last week and looks for an accelerating move lower”to confirm the existence of a major bear move.” Then, once thebear move is identified, he will watch for the market to exhibit adecreasing downward velocity followed by a “bump.” “That willsignify we have hit the bottom and we will get out in a hurry,” hesaid.

The bi-weekly Commodity Futures Trading Commission Commitment ofTraders Report released Friday supported his contention thatnon-commercials went short before the price slide began. The reportshowed that although speculators were already net short a hefty18,237 in open interest as of Nov 24, by Dec. 1 they had increasedtheir open interest short position to only 19,371. Meanwhile, theJanuary futures contract had plummeted over 30 cents during thesame period, proving funds did little additional selling once theprice erosion hit. Saal explains that one of the textbookcharacteristics of a bear market is a rising open interest in aperiod of falling prices. Total open interest has increased nearly15,000 to 235,578 since Nov. 24.

In daily technicals the Pegasus Econometric Group of NewYork places support for January in the $1.80-81 area. Resistancelies at the bottom of the chart gap to $2.06.

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