Buoyed by a price-constructive intermediate-range weather forecast and stronger cash market prices, natural gas futures shuffled higher for the second-straight session Monday amid light short covering and fresh long accumulation. Although unable to sustain a move back above the $3.00 mark, bulls were impressed by the market’s ability to rebound from a late morning dip to the low $2.90s. Bears, meanwhile appear more convinced than ever that the market will continue lower. At the closing bell, the August contract was 2.3 cents stronger at $2.978.

A Denver-based trader was quick to point to strong July cash market prices as a positive influence on the futures market yesterday. “The cash-futures spread has been flipped upside down, at these prices, it makes more sense to sell your gas than it does to put it into the ground.” He may have a point: After spending most of the month below the August futures price, Henry Hub cash prices for July are currently trading at a premium to the futures, creating what traders commonly refer to as a backwardized market. The prominent feature of a market in backwardation, the trader continued, is that it creates little or no incentive to put gas into the ground. “Storage is filling up nicely. The market’s thinking is that there will be plenty of opportunity fill storage when the hot weather abates and cash prices are not above $3.00.”

Looking ahead, most traders, brokers and market watchers agree that the futures market will likely come under more selling pressure when amid temperatures and cash values moderate. In the meantime, however, they do not rule out the chance for a technical rebound. “Our view remains negative, though technically, a modest bounce in this area is called for,” offered Cynthia Kase of New Mexico-based Kase and Company. “Keep in mind that when bullish patterns do not come to fruition, the market becomes even more bearish. Therefore, if a normal bounce does not take place at this time, the market is to be considered even more bearish than otherwise.”

For Kase, a “normal” bounce would be achieved if prices exceed $3.10 for August and September and $3.17 for October. In that event, she looks for prices to ultimately continue lower, but perhaps only as low as the $2.75 area. However, if the correction fails to meet her targets, Kase will be looking for much lower prices, “certainly $2.50 and perhaps $2.00-10.”

In daily technicals, resistance is seen at $3.30 for August and September and $3.40 for October. On the downside, major support is expected at $2.72 with a layer of intermediate support at $2.81.

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