Natural gas futures fell sharply in abbreviated pre-holiday trading Friday as technical selling apparently outweighed concerns over the development of several tropical systems. The October contract finished its second session as prompt month on a negative tone, dropping 21.3 cents to close at $4.731.

Most sources polled by NGI were quick to shrug off Friday’s retracement. “This was a local-led sell-off,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “There were only about 40% of the usual traders in the pit and they decided to see if they could run the stops,” he said, referring to the practice of selling the market lower in an attempt to trigger sell-stop-loss orders placed below the prevailing price level. While their tactics were successful, Friday’s 21.3-cent decline should have an asterisk next to it showing that it came on extremely light, trading volume of just 50,951 contracts.

The National Hurricane Center was tracking three tropical systems on Friday: Hurricane Fabian, which was 1,075 miles east of the Caribbean in the Atlantic; a large area of disturbed weather in the northwestern Caribbean Sea; and an area of tropical activity located about 850 miles southeast of Bermuda. Though Fabian was getting the most press on Friday, the more interesting storm and certainly the one that posed the more immediate threat to the Gulf of Mexico was the disturbance in the northwestern Caribbean Sea.

“If this thing [can organize], it would, at a minimum, create tropical storm conditions with 40-50 mph winds in the Gulf of Mexico Sunday, Sunday night and into early Monday,” said AccuWeather meteorologist Joe Bastardi Friday. The worst case scenario, he said, was for the storm to mature into a category one hurricane when it makes landfall along the coast of Texas or Louisiana. It would be called Grace after becoming a tropical storm.

Although supply disruptions are always bullish, they may be even more so this week following last Thursday’s storage report. According to the Energy Information Administration, 53 Bcf was added to underground storage facilities during the week ending Aug. 22, boosting working gas levels to 2,319 Bcf. Versus nearly all measuring sticks, the injection was bullish as it fell short of the 65-78 Bcf common range of expectations, the year-ago tally of 59 Bcf, the five-year average build of 58 Bcf, and the 78 Bcf addition from the week prior. Early predictions for this Thursday’s storage report call for a 70-82 Bcf injection.

Even though Friday’s losses occurred in somewhat illiquid trading, they left the market at a critical juncture over the three-day weekend. By dropping below uptrend support on the weekly chart at $4.72, the October contract sustained some technical damage Friday. And while its ability to close above that level may have dampened bears’ euphoria, the bull trend is now officially in jeopardy.

“Closing below the 0.5-cent per day Gann support line ($4.79 Friday) will be a warning the bullish case may be incorrect,” wrote Craig Coberly of GSC Energy in Atlanta in a note to customers Friday. “The further prices close below this support line, the greater the probability the bullish case is wrong. Trading below $4.59 would invalidate the bullish outlook and open up the downside potential to about $4.00.”

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