Swelling open interest and large long positions held byspeculators finally caught up with the May Nymex contract onMonday, as the spot month torpedoed 17.8 cents lower to close theday at $2.479. In so doing, the contract easily broke below the uptrendline that was lending major support in the $2.51-53 area. “Ifeel like I’ve been kicked in the face,” one source said.

Who knows, maybe he was, considering all the scrambling thatmust have been happening at the Exchange in conjunction with theestimated 78,602 contracts that changed hands there yesterday.”There’s absolutely no mystery to this, this is profit taking byfunds, pure and simple. Locals really don’t have the clout to dothis by themselves. Funds are the big part of this,” aHouston-based marketer said.

Considering how long speculators have been lately, Monday’sretracement was probably inevitable, one industry analystconcluded. “The latest Commitment of Traders report shows thatspeculators were net long more than 33,000 contracts as of lastTuesday. That’s the major reason why open interest is at an alltime high. Obviously, speculators aren’t going to stay that longforever, so they had to sell. And that’s a whole lot of contractsthey needed to sell, many of which got sold today,” he said.

Since May fell below its up trendline, the analyst expects thecontract to continue moving lower in the short term. However, theHouston based marketer feels there is a clear downward supportlevel in sight. “There is still a lot of strength in the market.LDCs are driving the cash market. They were doing some buying inthe $2.50s and $2.60s, so right now, they’re crawled up in a shell,waiting for lower prices. If the price comes down to first of themonth index levels, we expect them to be back in the market. Thatmeans May futures shouldn’t fall lower than say $2.40, accountingfor the cost of carry (between April cash and May futures prices),”he predicted. But if May does fall below that price, look forsecondary support at $2.30-31, a technician told GPI. Resistanceexists at failed support in the $2.51-53 area.

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