An actively traded over-the-counter market set the stage for aturbulent session Friday in the natural gas pit at Nymex andtraders did not disappoint — taking prices higher on the openbefore sending them lower in two distinct selling waves.
After a stronger open failed to entice enough buying to distancethe February contract from key resistance at $2.615, the market washit with a wave of fund and trade selling which in turn triggeredsell-stops on the way down. However, after reaching an apparentbottom at $2.42 shortly before noon (EST) the market moved higherand actually received a boost from intra-day stop-loss-orders thathad been placed on the move lower. That buying allowed the marketto trim losses throughout the afternoon and for a while it lookedlike the February contract would finish flat on the day. However, alate afternoon weather report put the bears back in control andthey did not hesitate in taking the contract dramatically lower inthe closing minutes.
Once the dust had cleared and the orders had been counted, theFebruary contract finished down 7.4 cents at $2.485 after tradingwithin a whopping 21.5-cent range. For the March and Aprilcontracts the damage was even worse as they spiraled 8.8 and 8.5cents lower respectively. Estimated volume confirmed the heavyactivity with 130,458 contracts changing hands.
“The market was dealt a serious blow when it failed above $2.615[Friday],” said Ira Hochman of New York-based Trot Trading Corp.Hochman, who has been a bull since February, moved back above$2.145 earlier this month and now feels the market will likelypullback into a sideways development period. “In a perfect world,the market would come back down to retest the $2.25-30 area andthat would serve as a base for a move to either direction. If themarket moves lower, $2.08 and $2.01 are your next levels,” he said.
On the other hand, a Houston-based risk manager is moreconcerned with the near-term and specifically the market’sdirection heading into Thursday’s expiration. “[This] week’sweather is expected to remain cold, but that should not impact ongas prices for the entire month of February. Traders will base atleast a portion of their decisions on forecasts for the first weekof February, but ultimately I bet there are enough people willingto short the month of February in the $2.45-55 area to drive pricesdown. Henry Hub index for January was $2.36 and even though pricesare higher now the average price in the aftermarket is only $2.26.”
Susannah Hardesty of Indiana-based Energy Research and Tradingagrees that weather forecasts early this week will hold the cluesand presents several different scenarios. “If the current forecastshold, prices should remain steady to higher this week, with highsranging between $2.65 and $2.715 for February. If the extendedforecasts project normal to moderate temps, and the AGA numbers arenot out of line, then prices could start to pull back a bit intoexpiration, into the $2.40-35 range. If on Monday and through theweek weather forecasts continue to be bullish, and the AGA numbersare strong, above 200-230 Bcf, the price rise will continue withadditional resistance at $2.78, $2.87 and possibly $3.03 going intoexpiration.
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