Despite continued above-normal temperatures across much of theU.S., natural gas futures rumbled higher yesterday as local tradersbid up prices in an attempt to set off buy stops positioned abovethe market. However, by Monday afternoon it was apparent they wereonly partially successful, and after notching a $2.255 high theFebruary contract eased lower to close at $2.216, a 4.3-centadvance for the session. Estimated volume was low with 48,189contracts changing hands.

Several cash market traders contacted by NGI yesterday were at aloss to explain the futures market advances in the face of somevery mild weather in the Midwest and Northeast. While theprecipitation was falling in the form of rain in Chicago, Bostonwas experiencing its record-setting 300th straight day withoutmeasurable snowfall.

However, for Tom Saal of Miami-based Pioneer Futures, the movewas purely technical. “Locals were gunning for [buy] stops above$2.23 [Monday]. They saw the low volume and figured they couldmuscle the market around. Once the buying dried up the in mid-20sthey liquidated their positions.”

Short for stop-loss-order, stops are either buy or sell ordersplaced above or below the current market to limit the risk of afutures position. In this case locals, using their knowledge of buystops in the $2.23-25 area, were successful in buying below, thenselling above these stops to turn a quick profit.

And although that sets up the possibility of further gains todayas technicians seek to fill in the rest of last week’s chart gap upto $2.305, Saal is unconvinced. “The fundamentals have not changedand this market is still searching for fair value. The summermonths could rally as the market shifts out of winter, but I lookfor the front months to continue to trend lower,” he reasoned.

Cynthia Kase of New Mexico-based Kase and Company agrees andpoints to the December low of $2.08 as the first target of bothFebruary and March contracts. Below that level, she calls foranother 20 cents of downside to the $1.91 area, with extensionspossible to $1.81, which coincides with the February 1999settlement price.

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