Traders halted the recent free fall in prices on Friday as August natural gas futures registered a low of $6.660 on the day before settling at $6.773, up 11.8 cents from Thursday but 48.7 cents lower than the previous Friday’s close. Whether the day’s trading marked a change in philosophy, or merely a rest stop on the way to even lower price levels, remains to be seen.

Following the significant losses over the last two weeks and Thursday’s 42.8-cent plunge in particular, traders, who were recently trading front-month futures north of $8, were scratching their heads for answers. Speculation on the Nymex trading floor was running rampant late in the week, especially surrounding a rumor that Houston-based energy hedge fund Trident Asset Management LP had been caught long during the price slide, resulting in exorbitant losses. The fund denied the reports on Friday (see related story).

“With June passing without much in the way of heat or storms, traders were able to subtract a month’s worth of premium out of the market. I think that is what we have seen over the past two weeks,” said Tom Saal, a broker with Commercial Brokerage in Miami. “I also think we are learning the effects of Globex electronic trading on this market. It may have accelerated or added to the move lower because people can act quicker electronically. Nowadays, people can get out of losing positions quicker and then pile on as the market moves lower.”

Commenting on Friday’s modest gains, Saal attributed the action to routine profit taking. “What we saw Friday was a little bit of a retracement ahead of the weekend following the massive sell-off of the last week or so. In addition to finishing out the week, it was also the last trading day of the month and the last day of the quarter, so I’m sure some people were looking to take profits.”

Saal said the market was currently in a little bit of a “no man’s land” because of the violent losses. “The last couple of days it really blew through a lot of support numbers that I thought would have held,” he said. “Below the current level, we’ve got support down at $6.325 and $6.150, so we are talking about dramatically lower levels from here if the move were to continue.”

Market technicians currently are attempting to determine if the last nail has been driven into the bulls’ coffin as they saw a ray of hope for bulls only in the fact that Thursday’s 42.8-cent meltdown of the August contract didn’t settle prices quite low enough. “The only bullish argument here is that Thursdays $6.655 close was not a decisive enough close down below the pivotal $6.690 support to justify abandoning any hope for bottoming action,” said Walter Zimmerman of United Energy.

Prior to Friday’s trading, Zimmerman noted that if August futures managed to settle above $6.690 on Friday then the bulls might be able to breathe a short sigh of relief. “While $6.655 may not be a decisive break down below $6.690, the complete absence of any hint of bottoming action on Thursday suggests that the bears may not have a long wait before they get their decisive close below the $6.690 levels. If $6.690 decisively fails, the next technical target is the $6.185 to $5.960 zone,” Zimmerman said in a note to clients.

The near-term weather outlook is not encouraging for the bulls. The National Weather Service six- to 10-day forecast shows below-normal temperatures for the large energy markets of the Midwest and Northeast. North and east of a broad arc extending from North Dakota to southern Missouri to Maryland is expected to experience below-normal temperatures along with South Texas. Georgia, Florida and the Southeast are forecast to endure above-normal temperatures as well as the entire U.S. west of the Continental Divide. As of Friday, the National Hurricane Center expected no tropical cyclone activity in the next 48 hours.

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