Resistance at $5 held up once again on Tuesday as November natural gas futures reached a high of $4.959 before retreating. The front-month contract reached a low of $4.513 before closing the day’s regular session at $4.588, down 29.2 cents from Monday’s finish.

Tuesday’s pullback brought the November contract closer to erasing the gap that was formed when the October contract expired. The current gap runs from $4.035 to $4.351. While some see the gap as a likely target, others see Tuesday’s drop as a short pit stop on the way to higher winter prices.

“Despite the impressive decline Tuesday, we still feel this is just a correction within the larger bull move. Temperatures have been getting pretty chilly in a number of regions as evidenced by the stocking caps being worn on the sidelines last Sunday during a number of professional football games,” said a Washington, DC-based broker. “Our view is this rally is not bologna. It is genuine and I think it reflects the fact that a lot of end-users hadn’t covered any of their gas needs as prices sank for six to eight months. I think a lot of end-users were underhedged going into the winter and they are now scrambling. The funds likely covered their shorts first, which pushed prices higher and sparked the end-users to take action.”

The broker noted that it was about time the bulls eased off the gas pedal for a short break. “It appears the current run higher has finally run out of steam,” he said. “You have to remember we’ve been basically heading straight up since Sept. 3 without any significant pullbacks. Futures chopped sideways for the last few days and then we got the significant down day Tuesday. We’re all looking to see whether we are going to get back into the gap around the $4.30s from the October to November contract change. We are still a little ways away from that. Really we are just chopping back and forth here for the time being. I would expect to see some follow-through possibly getting us into the low $4 area, but it will only be temporary.”

On the upside, the broker noted that resistance at $5 has been pretty strong. “Every time we trade above it we fail to settle above it, but I believe that trend will end sooner rather than later,” he said.

Technical traders following Elliott Wave methodology are not concerned that the upward price momentum has not yet been able to settle the November contract over $5.

“So far the consolidation over the past several days is consistent with a bull market rest stop,” said Brian LaRose of United Energy. According to his calculations, November would need to break below $4.480 (0.236 retracement of $2.409-5.120). “If the seasonal trend is still pointed higher, it will only be a matter of time before $5.072-5.179 is exceeded. The next step up in this case would target $5.565…minimum,” he said.

Bears are ready for the next step up. Phil Flynn of PFGBest says to sell November natural gas at $5.10 with a stop-loss order at $5.15.

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