After holding in the $5.20s for much of the session Friday, the February natural gas futures contract was flushed lower in the final 30 minutes of trading as short-term traders — fearing revised (warmer) forecasts Monday — liquidated their long holdings. The prompt month finished the week at $5.143, down 16.1 cents for the day and 20.1 cents for the week.
Last week’s price action was somewhat similar to the week prior. After trending higher on Thursday, the market looked poised to extend those gains on Friday. However, a poor open set the tone Friday and the February contract could not muster enough buying to even test Thursday’s $5.32 high. Friday’s selling, which actually began early Friday morning in the Access overnight session, came from all market segments, said Ed Kennedy of Commercial Brokerage Corp. in Miami.
“The overnights have been brutal lately,” he continued. “Speculators and local traders have taken just as much of a thrashing from the volatility as commercial traders….These price swings have beaten them into submission — so much so that they are now on the sidelines. This in turn adds to the illiquidity. What we are seeing is a market with no follow-through in either direction.”
However, the funds remaining on the sidelines is not the only cause of the volatility, Kennedy continued. A prime contributor to the wide price swings is the market’s distrust in the latest governmental weather forecasts. After calling for mostly above-normal temperatures for much of the fourth quarter of 2002, the National Weather Service has now joined the private forecasters in calling for the arctic air that swept into the eastern half of the country over the weekend to stick around until at least the latter stages of January. And while that forecast may be on target, it is contradicted by a Jan. 9 release from its parent — the National Oceanic and Atmospheric Administration — calling for a mature El Nino weather pattern to bring warmer-than-average temperatures to the northern tier states, which include the populous upper Midwest and Northeast, through March.
Taking it all into account, Kennedy is bullish on weather but bearish on the calendar. “Not too many winter months left out there now that February is prompt. We may have already seen this market’s high,” he speculated. Because the market has spent so much time in the $4.80-5.40 range, Kennedy cautions that the first move outside of that range will be significant, regardless of its direction.
George Leide of Rafferty Technical Research in New York is in agreement with Kennedy on the size and scope of the recent trading range, but differs with Kennedy as to which direction the market may break. “We are bullish in the long-run but bearish to neutral in the short-run,” he issued. “The market will be on the defensive Monday following Friday’s weak finish and we could see a further wash-out.”
That being said, however, Leide is patiently waiting for a retracement back down into the $4.80s to establish a long position. Only if the market drops into the $4.90s and stabilizes there would he look to buy in at a higher level, he said.
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