After spending the first two weeks of July in a mini uptrend, natural gas futures broke beneath major support last week, as traders continued to factor in the blistering pace of storage refills and normal- to below-normal temperatures. The August contract was hit with heavy selling Monday, and then again Wednesday through Thursday, pressuring prices to new 14-month lows and dashing bulls’ hopes that a bottom had been achieved. August moved mostly sideways on Friday to close at $2.955, up a modest 1.6-cent for the day but down a whopping 29.5 for the week.

Encouraged by a series of higher highs and higher lows for the first half of the month, bulls entered last week optimistically, having felt that the market had found a good level of support near the $3.00 level. After all, twice during the first week of July the market had tested, but failed to break beneath support, lending credence to the assertion that bearish fundamentals had already been fully reflected in the price level.

However, Cynthia Kase of New Mexico-based Kase and Company was largely unfazed by the bullish sentiment. “There is nothing out there to tell me that this is anything other than just a correction in a bear market. Unless we see a break and settle above $3.50, this is only a correction.”

One of the primary factors influencing her outlook was formation of a bear flag on the August daily chart. Since notching a $3.05 low on July 2 the August contract made a series of higher highs and higher lows almost each day through July 12, when prices peaked at $3.44. Marked by this sort of rising channel within a larger down-move, a bear flag results in a continuation to the downside about 90% of the time, Kase said on July 12.

As it turns out, the market played out as the percentages would suggest. The August contract set the tone last Monday by gapping lower and testing support at $3.05 for the third time in as many weeks. And while some traders felt that level would support the market the way it had previously, others knew that–like people–market bottoms tend to go by the ‘two’s company, three’s a crowd’ principle.

“There is no such thing as a triple bottom. There is a single bottom, or spike bottom. There is a double bottom, marked by two lows at or about the same level. But when a market tests an area more than twice, chances are good it is going through it,” explained Tom Saal of Miami-based Pioneer Futures.

Looking ahead, storage speculation will likely take center stage early this week as traders brace for another American Gas Association storage report this Wednesday. As of Friday, injection expectations were scatter-shot, ranging from as high as 100 Bcf (Lehman Brothers) to 80 Bcf (Saal). A year ago the market put just 54 Bcf into the ground and the five-year average is not much better at 64 Bcf. Last week the AGA announced 110 Bcf was injected into underground storage facilities for the week ending July 13, bringing working gas levels to 62% full at 2,042 Bcf. Included in the injection figure was a one-time, 14 Bcf upward revision to underground storage levels that was attributed to a correction issued by one of the reporting companies in the Consuming Region West.

“We have a company that reported a correction to the prior data that they had been reporting to us,” said Chris McGill of AGA. “It was not a one-week over one-week situation. The company had, in the computer program that aggregates their data, found a glitch that had been under-reporting to us for a period of time–several months actually. So the net 14 Bcf adjustment…did not happen as a result of something last week, it happened over a period of time. There was a cumulative effect. Unfortunately there was no way to go back and change it [retroactively] because [the company] couldn’t provide us data on a week-to-week basis.”

In daily technicals, support is now seen at $2.832, which represents 38.2% Fibonacci projection of the move from $3.45 to $3.003. Resistance exists at the failed support level in the $3.00-05 area.

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