Having already experienced a wave of long liquidation (Friday) and a short-covering squeeze (Monday), natural gas futures were left without a major price influence on expiration day Tuesday. Modest, market-on-close selling tipped the scales in bears’ favor in the last 30 minutes of trading. The November contract finished at $4.126, down 5 cents for the session, but 23.7 cents higher than the level from which the market began its tenure as prompt month.

Traders polled by NGI Tuesday admitted being in a wait-and-see mode. With weather forecasts calling for continued cold weather, sellers are reticent to push the downside. Meanwhile, bulls fear that another larger-than-expected storage injection Thursday could rescind any progress they might make ahead of the report.

Though admitting he is cautiously bearish, Ed Kennedy of Commercial Brokerage Corp. in Miami is not willing to fully endorse the downside until he can see how the cash market plays out. “Utilities will likely be reluctant to pull from storage so early in the season and that should keep cash prices propped up. And it will be difficult for the futures market to turn lower if cash prices stay strong,” he reasoned.

Kennedy may have a point. Driven by daytime highs only in the high 30s and low 40s F., New York area pricing jumped by about 20 cents Tuesday to average in the $4.70s. NGI‘s Henry Hub index was no slouch, ticking up XX cents to average XXX Tuesday, about a nickel above the November expiry.

However, from a technical standpoint, natural gas futures are could still move lower, market-watchers agree. For starters, at $4.261, the December contract rests just above its 40-day moving average at $4.19. A break of that level could prompt non-commercial fund traders — who are not especially long currently — to try the short side of the market. The resultant selling could propel futures down below the psychologically important $4.00 level.

Tom Saal, also of Commercial Brokerage Corp., said November’s inability to break beneath $4.085 on Monday represents a “failed auction.” Below this level of support, the Market Profile technical trading system identifies pricing areas that should be filled in so that the market may complete a normal bell curve distribution. Using Market Profile, Saal is able to target the $3.90-98 area as a level in which the market spent precious little time during its recent rally. Because of this, Saal looks for the market to revisit this area of “negative development.” Below that level, sturdier support exists at $3.84.

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