For the third-straight trading session, natural gas futures tumbled early, but quickly stabilized Monday as traders continue to view the market with apprehension. On one side is the market’s seasonal tendency to rally in September; on the other is the bearish storage and weather outlook.

Technicals were an apt depiction of this uncertainty Monday with a positive close contrasted by another session marked by a lower-low and a lower-high. October finished up 1.1 cents at $4.494 in light trading.

All is quiet on the tropical storm front in the wake of Hurricane Isabel, leaving temperatures to range from normal to slightly below-normal across much of the East Coast. More of the same is expected for the next week or so, with the latest National Weather Service six- to 10-day forecast calling for below-normal temperatures from the Mississippi River eastward. In two months, below-normal temperatures will be undeniably bullish, but cooler-then normal mercury readings in the month of September translate into lower degree days cooling and higher storage injections.

Market-watchers are already positioning themselves ahead of this Thursday’s inventory update and early expectations are calling for a whopping 95-100 Bcf refill. “We anticipate 100 Bcf in net injections to DOE storage for last week, clearing the 73 Bcf five-year average by about the same margin as in the prior report,” calculated Tim Evans of IFR Pegasus in New York. Last Thursday the market dropped a cool 17 cents on the news that a record-setting 102 Bcf had been stored underground during the prior week.

However just as storage expectations were making it difficult for buyers to rationalize a price rebound, the latest data from the Commodity Futures Trading Commission was putting doubt in the minds of those holding short positions. According to the latest Commitments of Traders Report, non-commercial traders were net short more than 32,000 positions as of last Tuesday.

Looking back at the history of COT data, these ‘speculators’ have been a good barometer of overall price movements as they sell into price weakness and buy a market moving higher. Because these funds have only been shorter twice (Jan 02 and Aug 98), market watchers fear that a short-covering rally and higher prices are likely.

October futures will go off the board at 2:30 Friday. Until then, chartists peg resistance at the $4.55 level of failed support from last week. Highs notched Friday and Monday at $4.525 and $4.52 may also spawn some selling, sources agreed.

On the downside, support is harder to gauge as technicians are forced to rely on uptrend lines off lows in January and August of 2002. “The outlook is for gas to continue to slide lower until reaching the next level of strong support that’s identified by a Gann support line rising from the January low,” wrote Craig Coberly of GSC Energy in Atlanta. Specifically, Coberly is using a uptrend line that is currently seen at $4.21 and features a slope of one-third-cent a day.

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