With basically no positive news on which to rear their horns, bulls were once again on the defensive Friday as a lower open forced them to either liquidate long positions or pony up additional reserves for margin calls. Naturally, some chose the former, and that selling pressure translated immediately to lower prices, as futures probed to fresh 16-month lows for the third straight session. September was the hardest hit of any of the months in the gas pit, tumbling 10.5 cents to close at $2.706.

Heading into Friday’s session, some traders were optimistic prices might rebound ahead of the weekend. After all, September futures had lost ground in each session last week through Thursday. A little short-covering ahead of the weekend was almost expected, right? As it turns out, however, that buying interest was never seen in the market Friday. Instead, traders who had established longs in September futures over the past several weeks in hopes the market had already plumbed its lows, were forced to liquidate Friday.

The September contract expires this Wednesday at 3:10 p.m. (EDT), about 70 minutes after the release of fresh storage news by the American Gas Association. Early predictions ahead of that report are calling for a net build just shy of last week’s 86 Bcf announcement.

However, few market watchers had even had a moment to think about this week’s storage report. Most were still trying to make sense of last week’s revision (for the report released the Wednesday prior) from a 3 Bcf to a 50 Bcf injection.

For Tom Saal of Pioneer Futures the bearish revision would not have been so devastating had it been released correctly in the first place. “Whatever hopes bulls had were dashed when the American Gas Association revised [the week prior’s storage report]. I think we still would have rallied had the 50 Bcf injection been announced (instead of the 3 Bcf) then. The rally would have not been of the same magnitude, but we still would have rallied.”

George Leide of Rafferty and Associates echoed that sentiment. “The net result of the erroneous data release and then the correction was about 20 cents to the upside and about 20 cents to the downside. The market would have still rallied and sold-off. It just would not have done so with such vigor.”

Looking ahead, Saal believes the body of evidence points to new lows this week. “We closed near the low of the week, and that usually calls for at least a test of the prior week’s low. The first level of support is seen at $2.639, which represents the 1.382 Fibonacci extension of the move from $3.62 to $2.91.”

However, in order for the market to continue make new lows for the year, it must continue to see a steady stream of sellers. That, in turn, begs the question of who will be a seller down at these levels. Producers are typically reticent to sell a market that is making new lows–they would prefer to sell into rallies. Meanwhile, several large marketers have been seen as scale-down buyers on the move lower. Who then will continue to pressure prices to the downside?

“Funds,” answers Saal. Although they have held a net short position in the 20,000-30,000 range recently, history has shown they can increase that to 40,000 positions or so. All they need is for their trading systems to continue to generate sell signals. “And there is nothing out there that I can see that would cause them to cover right now,” he continued.

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