After dropping 14.2 cents and coming within striking distance of its 40-day moving average at $2.25 on Monday, March natural gas futures rebounded yesterday as last-minute position squaring by fund and local traders was enough to promote the contract back above the $2.40 mark in the final minutes before the contract’s expiry. March’s final settlement, which is computed by averaging the last 30 minutes of trading, was $2.388, up 8.1 cents for the session and 32.1 cents higher than where it was when it began its tenure as prompt month back on Jan. 29. By comparison, the buying in the out months was more conservative, leaving the 12-month strip with a modest 3.4-cent gain to finish at $2.73.

Many traders were surprised by the market’s ability yesterday to retrace a portion of Monday’s losses and to finish near the $2.40 mark. Although colder temperatures were being felt across much of the Plains and Midwest Tuesday, the arctic air is not expected to have the intensity or the duration predicted last week when natural gas futures climbed to a new six-week high at $2.47.

While admitting that the $2.388 settle overshot his estimate in the low $2.20s, Jay Levine of Advest Inc. argues that this market is susceptible to a price slide. “Technically, we’re still in a minor uptrend, although we need to take out $2.41 to maintain this momentum and at these levels we’re hanging in overbought territory. It would take a move beyond $2.41 to get us to the next plateau and significant resistance in the mid $2.50s to $2.60 level.”

With April making its debut as prompt contract today, Levine is suggesting that aggressive traders look to profit on a move lower by selling the low $2.40s in overnight Access trading. Option players might look to sell April $2.50 and $2.60 calls and buy April $2.20 and $2.30 puts, he added.

However, with fresh storage data set to be released this afternoon, prudence might suggest a wait-and-see trading approach. Expectations ahead of that report call for a withdrawal of 100 Bcf or less, which would fall short of last year’s 101 Bcf withdrawal. Pointing to warmer weather last week than had been originally forecast, Thomas Driscoll of Lehman Brothers in New York has ratcheted down his withdrawal estimate to 85 Bcf from 105 Bcf.

Tim Evans of IFR Pegasus in New York also looks for a 80-90 Bcf drawdown, and feels that despite the forecasted cold weather, the market will still need to pay — in the form of lower prices — for the high level of storage relative to prior years. In April technicals, Evans sees support first at $2.28-32 ahead of the $2.24 uptrend support line. A break beneath the $2.21 low set Feb. 15 would likely lead to a retest of the $2.06 bottom from Jan. 28. To put his money where his mouth is, Evans is short April from $2.34 with a buy stop at $2.43 to limit his upside risk.

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