After spending most of the session near Monday’s $4.94 high, the November natural gas futures contract sold off late in the session Tuesday as weak longs took profits ahead of the Thursday release of potentially bearish storage data.

However, that selling failed to break below support in the $4.82-83 area and that leaves the market’s behavior this week open to both bullish and bearish interpretation.

November finished at $4.83, down 6.5 cents for the session and 11 cents from its earlier high. Selling in the out months was more muted, with the 12-month strip slipping only 2.5 cents to average $4.885 Tuesday.

Following two months of price bearishness, the bulls were running again on Monday as cool weather forecasts call for the season’s first real heating load in the Northeast and Upper Midwest. Natural gas futures prices soared 27 cents to start the week and prompted many market-watchers to shed their bear coats in time for winter.

However, that bullish euphoria was quickly tempered Tuesday when the cash market failed to ratify the futures market advance. NGI‘s Henry Hub cash price was up only a dime to $4.67, a whopping 22.5-cent discount to Monday’s Nymex close of $4.895. September marked the first month since February that daily cash prices failed to surpass the first-of-the-month bidweek posting for the Henry Hub. That is already untrue for October, which already saw its Henry Hub daily cash price easily exceed the bidweek posting.

In addition to the lack of cash-futures convergence, bulls were also befuddled Tuesday by concerns over another large storage injection expected to be released this Thursday. Predictions are centering on a 90-100 Bcf build, which would easily exceed the five-year average of 63 Bcf and the year-ago refill of 48 Bcf. Versus last week’s 100 Bcf injection — which resulted in only a weak move higher Thursday — a 90-100 Bcf build will not come as a shock.

However, for many market-watchers, a better litmus test for the supply/demand equilibrium will come in next Thursday’s storage release that will include this week’s first blast of cooler air. “While we have continually emphasized the importance of the [residential and commercial] load, the temperature-adjusted supply/demand balance is also considered very important,” said Kyle Cooper of Citigroup.

Specifically, Cooper makes the case that even a 50 Bcf injection released next Thursday would be bearish if the temperature-adjusted model calls for a 35 Bcf build. “It would indicate to us that the supply/demand [equilibrium] was remaining bearish and large draws this winter will truly need very cold temperatures.”

In daily technicals, Craig Coberly remains unimpressed by the market’s early-week rally and believes the body of evidence suggests the market is headed down to Gann support in the $4.45-50 area. A settle above resistance at $5.24 would prove him wrong and make the bullish case obvious, he adds.

However, Tim Evans of IFR Pegasus in New York maintains that Tuesday’s low of $4.82 is a close enough match with failed resistance at $4.83-835 to constitute a confirmation of support, possibly paving the way for a continuation higher. The first tract of selling is likely in conjunction with November’s Monday overnight Access high of $4.98, he said.

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