The May Nymex contract continued its assault into higherterritory last week, as the spot month made its first ever tripabove the $2.70 mark. In fact, May set its new all-time high of$2.725 Thursday morning before strong profit taking ahead of thelong holiday weekend drove May down to a Friday settle of $2.567,up an overall 10.1 cents for the week.
Despite this lower settle, May rebounded strongly after reachingsupport at $2.605 Friday, a feat one trader feels leaves the spotcontract in good position to move higher this week. “May had theperfect opportunity to freefall lower following the AGA storagereport, but as many as 20,000 buy orders were triggered when thecontract fell below $2.630. This shows funds are strongly behindthe upmove,” he proclaimed.
The storage report to which the trader referred came in at 53Bcf worth of injections last week. That’s well above the 20 Bcf ofinjections from the same period last year, and even more above someanalyst’s projections of 20 Bcf worth of withdrawals. “That’s asnegative a signal as the market has seen recently, and the marketshook it off with relative ease. For that reason, I look for fundsto initiate fresh long positions when trading resumes in earnest[this] week,” the trader said.
Futures may very well continue to surge higher, but one brokerfeels the May contract could first see some pretty stern resistancejust a short distance up the road. “The $2.80 area for some reasonfor natural gas has always been a pretty tough level to getthrough. But once you get above that you tend to stay there,” hesaid.
So what’s it going to take to move prices up there? “A lot ofthings, but a lot of things can very realistically happen,” thebroker continued. “The industry is as short physical gas right nowas it’s going to be until November, so people will have to buy tofill inventory. Plus, a warm summer, continued coal deliveryproblems to Southwestern utilities from the Union Pacific Railroadlines, a potential barge strike on the Mississippi River that couldfurther curtail coal deliveries, downed nukes, hurricanes, andpipeline maintenance can all add to higher prices. I’d say the riskin this market is clearly to the upside.” While these factors maydrive prices in the future, an analyst believes technicals willlikely continue to have a major impact on the May contract in theshort run.
“The trend is your friend, and right now locals and funds areputting significant amounts of cash behind that statement in theform of buy orders,” he said. Considering May is currently tradingwithin an upsloping channel, he feels this pattern will likelycontinue in the near future. “Funds are buying dips and sellinghighs. Right now, the bottom of the channel is in the $2.51-53range, with the top around $2.72-74. Since May has an all-time highat $2.725, it will be interesting to see whether speculators canpush the market much higher if May moves above that price. If so,May will probably have smooth sailing into the $2.80-82 resistancearea,” he predicted. On the other hand, if May moves lower, lookfor immediate support at $2.605, followed by support at theaforementioned $2.51-53 level, he said.
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