For the second day in a row, the natural gas futures market opened higher but fell lower late in the session as traders elected to take profits on the hunch that all the bullish news available has already been factored into prices. By virtue of losses Friday, Monday, and Tuesday, the November contract becomes the first prompt month since September to notch a string of three down days. It closed at $4.11, down 4.7 cents for the session and a whopping 31 cents beneath Monday’s 18-month high at $4.42.

Market watchers were quick to point to moderating temperature forecasts for the beginning of November as a factor in the Tuesday’s price slide. According to the latest six- to 10-day forecast released by the National Weather Service, below normal temperatures will be confined to the northern and midwestern sections of the country, as milder temperatures are expected to re-emerge in Southeastern and South Central U.S. The West, meanwhile, which has been mostly immune to the chilly Canadian air, will continue to experience normal mercury readings, the NWS said.

However, the rest of this week will be chilly and that begs the question whether the market will get its first storage withdrawal next Thursday. “Based on weather forecasts, a draw in next week’s report is not out of the question,” writes Kyle Cooper of Salomon Smith Barney in a note to clients Tuesday. While he will make his final appraisal on next week’s storage report once the actual degree day data is available this weekend, he warns that yearly storage comparisons should be very bullish throughout November.

The natural gas market tends to have a very myopic view of storage, choosing to look at the year-on-year comparison while ignoring historical analogs. For example, last year the market injected a stunning 110 Bcf during the month of November. A year earlier in November of 2000, the market managed to withdraw 290 Bcf. Modest net takeaways were seen in November of 1998 and 1999. If the market withdraws gas this November as has been the case historically on average, that will compare bullishly with last year’s net injections. Advantage: bulls.

However, November storage figures are still two weeks away. This week, the market is looking for an injection in the 15-30 Bcf range, which would fall mostly in line with last year’s 32 Bcf addition.

Looking ahead, storage is not the only game in town. Also of concern for price bulls is the emergence of some increasingly negative technical factors. Tim Evans of New York’s IFR Pegasus is quick to point to the break of last week’s $4.11 low on Tuesday as possible confirmation that a top is in place. “We see some residual support in the $4.00-02 area, but risk that follow-through past that point would target the $3.832 uptrend,” he said Tuesday. Evans backs up his words with a short position initiated at $4.09. A buy order at $4.26 would stop him out for a loss, should the market turn higher.

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