Following Monday’s explosion to $6, profit taking was the name of the game on expiration Tuesday as the January natural gas futures contract slumped to terminate at $5.814, down 17.6 cents. February futures slid 15.6 cents to $5.840.
After reaching a new high for a bull move of $6.035 in early morning trading, the January contract descended for much of Tuesday’s regular session, recording a low of $5.780 before expiring. Despite cold and expected stout storage draws over the next couple of weeks, some market experts were expecting the bulls to give it a rest for a while.
“The January contract went off of the board Tuesday on a downward slide and from looking at the technicals we might have seen a short-term top to this market,” said Julio Sera, a broker with Hencorp Futures LC in Miami. “We briefly visited $6 Monday…saw the sights and retreated. Market Profile is looking like we might have seen the high for a bit and that a reversal could be in the cards soon. On Tuesday we certainly saw some profit-taking on the expiration.”
Even with another cold streak set to hit the East later this week, Sera has his faith in the technicals currently. “If the weather comes out to be what the forecasters are calling for, then it is going to be pretty cold and we would expect to see some pretty large draw-downs in storage, which could give the bulls some room to roam higher. However, we still have to see how the weather and storage picture plays out over these next few weeks.”
Looking at Market Profile on the charts, Sera said an untested value area still exists from Dec. 16. “On the February contract, the value area target begins at $5.556, so if you’re looking for a reversal pattern, I think that would be our first stop,” he said.
On Monday January futures scored a meteoric 34.7-cent advance to $5.990, and some analysts don’t see any sign that prices are about to retreat meaningfully anytime soon. “This market has garnered some strength from updated temperature forecasts that remain tilted toward the cold side through the first week of January,” said Jim Ritterbusch of Ritterbusch and Associates. He added that until these cold patterns begin to subside, upside price risk will remain. “We continue to emphasize the dynamic of a major contraction in the supply surplus that has been evolving during the past month.”
The National Weather Service forecast some modest relief from the last week’s blizzard-like conditions that raked the Ohio Valley and East. Heating requirements in major energy markets for the week ending Jan. 2 are expected to be slightly below normal. New England is expected to endure 254 heating degree days (HDD), or 17 fewer than normal, and New York, New Jersey and Pennsylvania are anticipated to shiver under 240 HDD, or 11 fewer than normal. The Midwest from Ohio to Wisconsin is forecast to experience under 279 HDD, or six fewer than normal.
Funds and managed accounts continue their movement to the long side of the market. The Commodity Futures Trading Commission reported Monday that the managed money component of the open interest of both futures and options contracts increased long positions and reduced short holdings. For the five trading days ending Dec. 22 funds and managed accounts increased long contracts by 7,319 to 127,110 and short positions decreased by 3,810 to 151,093. January futures rose 19.2 cents to $5.715 during that period.
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