Shrugging off gains achieved in the nearby crude oil pit, the natural gas futures market set new lows for the week Friday as traders liquidated positions in concert with some negative technical factors and ahead of mild weather expected this week. At $6.442, the newly-anointed prompt month July was down 13.1 cents for the session, but still up 3.3 cents for the week.
After trading in lock step with crude for a good portion of the last couple of weeks, natural gas futures had a mind of its own Friday, diving lower despite modest advances experienced by its hydrocarbon brethren. July crude finished up 44 cents at $39.88 Friday.
Traders polled by NGI agreed that forecasts calling for cooler-than-usual temperatures in the Northeast for the first week of June put gas traders in a selling mood Friday. According to the latest six- to 10-day forecast released Friday by the National Weather Service, below normal temperatures are expected in the northeastern quadrant of the country for the June 3-7 timeframe. Meanwhile, normal temperatures are expected over much of the Southeast, mid and South Central portions of the country, with above-normal mercury readings confined to Florida and the Western third of the country.
However, mild weather forecasts were not the only bearish factor Friday. Also depressing prices, traders agreed, was a bit of price-negative inertia that began when prices were unable to punch through the highs reached earlier in the week.
“This market has done a good job of making higher highs and higher lows recently, but that bull trend may have come to an end with this latest sell-off,” noted George Leide of Rafferty Technical Research in New York.
“We made a triple top [early last week] at $6.80, but failed follow-through.” Add that to the gap lower [Thursday], and Leide notes that you have the recipe for a continued sell-off. “It certainly bodes bearish in the short-run.”
In the longer-run, it is more of a two-sided trading market, he argued, pointing to the wide, $6.10-86 trading range. “You don’t want to be a buyer on strength or a seller on weakness.” Instead, Leide endorses the opposite approach and would respect the trading band by buying as prices dip toward $6.10 support and selling as they approach resistance at $6.86.
Intermediate support, Leide continued, is clustered at $6.36-39. A break lower would like result in a run to the $6.10-20 area.
Technician Craig Coberly of GSC Energy in Atlanta agreed that the market may have turned lower, and cites the $6.43-46 area that was broken Friday as having been a key level of support. “Crossover of the daily stochastic oscillator will occur on a close below $6.55,” he wrote in his Friday morning report. “This may give us a little earlier warning that the rally is probably over.” Similar to Leide, Coberly targets prices just above $6.00 as the potential downside target.
Meanwhile, NYMEX on Friday announced it was extending the listings for its Houston Ship Channel basis swap futures contract from June 2007 to December 2007, responding to feedback calling for expanded risk management capabilities.
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