May natural gas futures rose as traders demonstrate internal market dynamics pointing to at least a market bottom if not higher prices. At the close Tuesday May futures were up 15.2 cents to $4.160 and June added 14.2 cents to $4.253. May crude oil slipped 29 cents to $84.05/bbl.

Tom Saal of Hencorp Futures in Miami, a follower of the Market Profile methodology, notes that recent natural gas futures trading has formed three “nontrend” days. “Normally one nontrend day would be enough to identify a market turning point, but within the last month there have been three of them. This is highly unusual. A nontrend day indicates indecision, and as bearish as the fundamentals are portrayed in the press, traders are indecisive.”

“The three nontrend days were in the $4.17 range about a month ago, and at the end of a move, in this case a decline, the long-term sellers stop selling, but some Johnny-come-latelys came in and sold. Those guys are saying, ‘I thought this market was going to $3’ and are now are buying back.”

The most significant difference between Market Profile and conventional technical analysis is that technical analysis attempts to determine market direction from historical data, often in the form of daily bar charts, but Market Profile uses the evolving market as its foundation to ascertain future market direction.

Analysts admit that the supply-demand balance is not particularly favorable, but they are uncomfortable with what they see as prices not reflecting an economic environment little changed from when prices were higher. “We know the fundamentals are hardly glowing here, and there is plenty of natural gas coming from current production as well as available from storage. This is not a bullish picture,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. Beutel is thinking that may not be the issue. “The bigger question is whether the fundamental picture has worsened materially from what it was at various earlier points. Against many or possibly even most of those points, the answer is that the picture has not deteriorated enough to justify existing prices,” he said in a morning note to clients.

Others are less worried about a mismatch between current prices and the economic situation and see last year as a model for this season. “I look for this summer to be a mirror image of last year’s March-through-August,” said a Chicago banker. He added that the market traded from $3.25 to $4.40 from March through August. “We had five rallies of 70 cents or more during that period, and what we saw last week is just the first of many rallies to come as we continue to drift lower.”

According to the banker, weather and hurricanes are capable of playing their part in upcoming price determination, but at this point he is content to remain circumspect. “The weather is certainly a factor and everybody that you talk to has answers for every type of weather scenario, bullish or bearish. I don’t tend to worry about the weather at this point, especially hurricanes, because it’s not the number but where they go.”

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