Natural gas bulls saved their best for last Friday, as they buoyed prices to a new two-week highs amid a combination of profit-taking and short-covering. After moving steadily higher throughout the session, the January contract spiked at the close to finish the week at $2.846, up an even 9 cents on the day and 27.8 cents above where the contract was the Friday before.

Nearly everyone contacted by NGI last week was surprised by the market’s strength despite the overwhelming fundamental bearishness that existed. Temperatures continued to average well above normal across much of the country, and supply, as measured by the amount of gas in storage, remains at record levels. For that reason, most market-watchers remain skeptical that the January contract can hold on to last week’s advances. While admitting that the market will likely see more than the token takeaway that it has experienced thus far this withdrawal season, Tim Evans of New York-based IFR Pegasus believes this week’s storage report will show a draw well below the 158 Bcf comparison from a year ago. “The year-on-year surplus has ballooned to 835 Bcf, and if the withdrawals for this week amount to 50-70 Bcf as we think they might, that will swell further to perhaps 925 Bcf or so in the next report,” he reasoned.

Due to the upcoming Christmas and New Year’s holidays, the American Gas Association will release its storage survey on the Thursday following both of those holidays instead of the usual Wednesday. Thus, storage will be released on Thursday, Dec. 27, and on Thursday, Jan. 3, at the usual time of 2 p.m. EST. Storage numbers will be released on Wednesday this week.

And although they will undoubtedly be mindful of the storage glut when fresh storage data are released, traders were more focused Friday on the latest weather forecasts that call for a return to normal temperatures for the eastern U.S. this week. According to the latest six- to 10-day forecast from the National Weather Service, seasonal temperatures are expected from Maine to New Orleans while above normal readings are predicted for the center of the country. The Southwest, meanwhile, is forecast to experience the nation’s only below normal temperatures for the end of this month, as chilly air is expected to invade much of California, Nevada, Utah, Arizona and New Mexico.

Looking deeper into its crystal ball, the NWS calls for temperatures to continue to fall into the month of January for the Northeast U.S., extending west to include the Upper Midwest and Great Lakes regions. At the same time, the NWS predicts above normal temperatures for the West Coast and the southern half of the country over the same period.

Looking at daily technicals, Evans remains bearish and is determined to ride the market lower. Accordingly, he is advising his clients to use a $2.68 sell-stop to enter into a 100% short exposure. “We’re going to use a $2.81 buy stop to limit our exposure until we get a chance to adjust that level to the actual price action ahead of the break [to lower levels].”

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