It is often said that a market tends to fall twice as fast as itrises and yesterday’s price action in the natural gas pit was atextbook example of that. Erasing two weeks of bulls’ handiwork,the November contract burst onto the scene as spot month yesterdayand was promptly sent packing as trade and fund selling ushered itsharply lower throughout the day. A small bounce at the end of theday did little to deaden bulls’ pain. The November contract closedat $5.124, down 32.3 cents for the day.

For George Leide of New York-based Rafferty Energy Group, thesigns of demise were evident as early as Tuesday, when thethen-prompt-month October contract touched the top of channelresistance on the weekly chart at $5.445. “Each time this markethas tested the top of the range, it has sold off and this was noexception. We saw good trade selling on Tuesday and Wednesday, andfund selling [Thursday]. This correction was long overdue.”

Meanwhile Tim Evans, a commodity analyst with New York-basedPegasus, had been warning of a sell-off of this magnitude for sometime. “The natural gas market posted new all-time highs again onTuesday, but for a market that has been doing just that insomething like 10 of the last 26 sessions, this headline hardlyattracts a second glance,” he wrote in a somewhat prophetic PegasusNatGas Report Wednesday.

“This is a market that has coasted higher without opposition;the other team has already gone home. This may indeed be the resultof the strong fundamentals associated with AGA storage levels 241Bcf less than last year and winter just ahead, but it also has theelements of an accident waiting to happen. Sellers have backed sofar off from this market for so long, that once prices do turnconvincingly lower the pent-up supply — profit taking on paperpositions and forward sales of physical production — may fairlygush onto the market. The new all-time record in open interest setMonday is one measure of this potential.”

Ed Kennedy of Miami-based Pioneer Futures agreed that thecorrection was long overdue, adding that buyers had no bullets leftin their arsenal. “Everyone who wanted to be long was already long.There were no more buyers to push the market higher.”

However, that is only half of the equation, he continued. “Themarket is entering its shoulder period and the word from storageplayers in the production area is that the rate of storageinjections is going to increase significantly over the next severalweeks. Those injecting gas into the ground are natural sellers inthe futures market in an effort to hedge their positions.”

On the technical side of the market, Kennedy believes themarket’s break of minor trendline support yesterday at $5.33brought in additional selling as did the violation of last week’s$5.19 low basis-November.

Marked by two highs separated by a low, a double top sticks outlike a sore thumb on a technician’s chart. When the market movedbelow the $5.19 yesterday after posting highs last week at $5.495and $5.565, it completed a double top formation, leading Kennedy aswell as other market watchers to conclude the market had put in atleast a temporary top.

However, Kennedy was quick to point out that the market is stillin a bull trend until the price drops below the long-standinguptrend line, which connects the Jan. 5 low of $2.125 to the July26 low of $3.61. For today’s session, that line comes in at about$4.03 and moves up at the rate of about a penny a session.

Leide, on the other hand, believes a break of $4.50 would dealthe uptrend an irreparable blow. However, he will be surprised ifthe November contract can break support at $5.05. “I look for thismarket to trade within a range probably between $5.05 and $5.50,until the market gets its next leg of direction from winterweather. Don’t be surprised by a little bit of a reversal [today],”he predicted.

As of last night, that reversal was already in the works as theNovember contract clawed its way up 7.1 cents to $5.195 by 5:15p.m. (EDT).

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