Natural gas futures continued its astonishing rally yesterday as fund and local traders used Friday’s strong close as a springboard to a gap-higher open. Bears only hope came in the form of a weak mid-morning sell-off. But when that weakness failed to fill in the chart gap down to $3.08, bulls were quick to bid the market right back up. The April contract closed at $3.305, up 22.9 cents for the session and just below the contract’s four-and-a-half-month high notched Oct. 31 at $3.32.

Reasons for the price strength varied, depending on who you were talking to Monday. For cash traders coping with lax demand and plentiful supply, the move was difficult to comprehend. Except for gains in the Northeast of about 25 cents, the cash market generally lagged the futures market again, prompting many to comment that cash prices were merely, “following the screen.”

Several traders were quick to point to strength in the nearby crude oil pit as a reason for the boost in natural gas futures. April crude gained 60 cents to notch the first $25-plus close by a prompt crude contract since last September. Other market watchers cited forecasts for a recovering economy and lower rig counts as a harbinger that the supply-demand equilibrium could be changing.

However, technicians once again had a bevy of factors to explain the price strength Monday. Following on the heels of its first $3.00-plus close in five months Friday, the prompt contract rebounded off early lows and closed just a half-cent off its high for the session yesterday. For Cynthia Kase of New Mexico-based Kase and Co., the key threshold was $3.27, which corresponds to the 89% Fibonacci retracement of the move from $3.44 down to $1.85. “Now that we have surpassed the $3.27 level, it is very likely the $3.44 top will be tested. And if we don’t get a pullback in the next day or so, you have to look for $3.51,” she said.

Above $3.51, which corresponds to a 21% retracement off the December 2000 high of $10.10 down to the September 2001 low at $1.76, Kase sees several hurdles in the $3.50s. Above those barriers, a move to $3.80 is possible, she said. However, even if the market erupts past those resistance levels, she believes the market will have a difficult time duplicating the $10 peak from 2000. “I don’t think you will see the prompt contract stretch to the degree we saw back then. What is more likely, is that the strength will be more spread out across the entire strip.” For Kase, that means that the all-time high for the 12-month strip at $6.50 could be at jeopardy well ahead of the prompt month high-water mark at $10.10.

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