Looking at first as if they would gain back a significant portion of their Monday losses ahead of expiration, January natural gas futures instead went on a late selling binge on Tuesday to settle at $6.213, up 5.3 cents. February futures increased 11.6 cents to close at $6.341.

January had spent a majority of the session building gains — reaching its high of $6.34 just before 2 p.m. (EST). January heating oil settled 1.13 cents higher at $1.2221/gallon, while February crude settled 45 cents higher at $41.77/bbl.

According to the latest CFTC Commitment of Traders (COT) report, noncommercial traders on the New York Mercantile Exchange increased their net short positions in natural gas futures by nearly 8,000 contracts for the week ended Dec. 21. The report, which came out on Monday due to the Christmas holiday Friday, showed that funds were holding net short futures positions of 43,092 contracts, raising their expectations that natural gas prices would decline even further.

On only two other occasions has the noncommercial segment held a larger net short position. During November 2003, the noncommercial traders held a peak net short futures position of 52,684. The record was set in January 2002, when noncommercials held a peak net short futures position of 62,643. This leads some to suggest that the market possesses a great deal of pent-up potential buying power.

Commercial Brokerage Corp.’s Tom Saal noted that professional speculators continue to sell as natural gas futures prices continue to drop. He added that fund net short positions are approaching record levels, so buyers should be ready.

Advest Inc.’s Jay Levine said, “This alone would make me believe a countertrend bounce is in the making.” However, Levine didn’t see any such move in store for Tuesday due to the fact that it was the January contract’s termination day.

For February support Tuesday night and Wednesday, Levine said he’d first look in the mid/low $6.20s, maybe even $6.175, then another 15 or so cents lower at $6.025-$5.975. As an outside target, he said he would look for $5.80/$5.75. On the opposite side, Levine sees resistance at $6.45-$6.50, then closer to $6.75/$6.80, with $7.10/$7.25 up next.

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