September natural gas slipped lower Monday in lackluster trading as natural gas failed to hitch its wagon to surging equity and oil prices and managed funds align on the short side of the market. At the close September had fallen 3.6 cents to $4.024 and October had eased 3.2 cents to $4.039. September crude oil jumped $2.50 to $87.88/bbl. and the Dow Jones Industrial Average gained 214 points to 11,483.

Short-term traders had been anticipating that the market might trade down to the $3.80s, but now seemed resigned to a trading range for the remainder of the week. “I was looking for it to trade down to $3.86 to $3.87, but the market traded up to $4.06, and I look for it to remain in a range between $3.90 to $4.20 for the next week or so,” said a New York floor trader.

“I expect to have a feel for the market in the next couple of days, but there wasn’t much to trade off of today. I kind of think nothing crazy is going to happen, and maybe next week we’ll trade back down to $3.90.”

The New York floor trader’s sense of a rangebound market belies the enthusiasm money managers have recently shown for the short side of the market. The Commodity Futures Trading Commission in its weekly Commitments of Traders Report showed manged money at both exchanges bailing on long positions and adding to short holdings.

For the week ended Aug. 9 managed money at IntercontinentalExchange reduced long futures and options (2,500 MMBtu per contract) by 61,831 to 422,217 and short positions rose by 16,472 to 156,405. At the New York Mercantile Exchange managed money reduced long futures and options (10,000 MMBtu per contract) by 890 to 140,191 and short positions rose by 7,687 to 252,567. When adjusted for contract size long holdings at both exchanges fell by 16,347 and short positions rose by 11,805.

For the five trading days ended Aug. 9, September futures fell 16.1 cents to $3.994.

Given the improvement in the stock market and a rise in oil prices, analysts don’t see the modest gain in natural gas prices made last week as encouraging for the bulls. “Considering we have been experiencing record temperatures in many parts of the country and we had a good rally in equities and the oils, the rally in the gas market was not very impressive. We did get a nice rally off a friendly storage injection [report],” said Mike DeVooght, president of DEVO Capital in a weekend note to clients.

“We continue to believe the gas market could continue to trade within its long-established range (high $3s to high $4s). We will become more cautious being long (or short puts) as we approach the end of August. A factor to continue to note is that on years when the summer gas market is weak, often times the month of September is not kind. There have been numerous years that major lows are made in September for the October trade month.”

DeVooght’s successful trading strategy is still in play. “On a trade basis we continue to use rallies into the mid to high $4s level as a selling opportunity, primarily utilizing collars and selling call premium. If we break back under $4.15, we will book profits on the short calls and sell put premium. Not exciting, but the best way (in our opinion) to trade this market until we get a break of the range. We will continue to hold our current collars and will look to sell calls and cover our short puts if we trade back above $4.60-4.70 or sell puts if we break below $4.15. If we break below $3.85, we will roll our short $4.00 puts to $3.85.”

What was a posse of four tropical systems late last week is now down to two. The most active is Tropical Storm Gert, which, according to the National Hurricane Center (NHC) in its 5 p.m. EDT report, was moving north-northeast at 14 mph away from Bermuda. Maximum sustained winds are 60 mph.

The other is a “vigorous” tropical wave at 16N, 58W, but development of this system is expected to be slow as it moves to the west at 10 to 15 mph. NHC gave it a 20% chance of developing into a tropical cyclone in the next 48 hours.

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