Taking back gains achieved in Monday’s rally, natural gas futures fell Tuesday amid waves of fund and local selling. The February contract was hit hardest by the selling, dropping 14.4 cents to finish at $5.107. While natural gas remains in an uptrend — both on the intermediate and long-term charts, traders feel that the longer the market remains range-bound, the greater the potential for a significant downdraft when prices finally break lower.

Several traders polled by NGI were surprised by the futures sell-off Tuesday, which came despite mostly higher cash market prices and the arrival of the coldest weather yet this season in the eastern half of the country. “It was 18 degrees on my commute in this morning,” said Nymex local Eric Bolling (RBI). “You can imagine my surprise when we spent the day selling off.”

Noting that the market was once again largely void of commercial traders, Bolling pointed to local sellers who jumped into the fray just ahead of fund and managed account long liquidation. “The funds were big sellers [Tuesday]. They will keep selling it every time we fail to break above the recent $4.80-5.35 trading range.”

Bolling may have a point. While February has notched a high above $5.30 in five of the last nine trading sessions, it has only managed to close above that threshold twice. In both instances (Jan. 3 and Jan. 9), the time spent above $5.30 was short-lived, and prices crashed lower then on Jan. 6 and Jan. 10.

“Every time we extend up there the market fails,” added Ed Kennedy of Commercial Brokerage Corp. in Miami. “We got some support from cash today, but it didn’t seem to matter. The [futures] market lacks the leadership right now to propel it though resistance. The buying just evaporates.”

While he would not be surprised by a little short-covering ahead of the Thursday morning release of Energy Information Administration storage data, Kennedy suspects the market has a better shot now of probing to the lower end of the recent range and points to targets layered at $4.97 and $4.85.

Because the market completed a Market Profile “trend day” Tuesday, Tom Saal, also of Commercial Brokerage Corp., looks to fade Wednesday’s opening. “If we get a higher opening, I’d sell it. A lower opening, I’d buy it,” he said.

However, technical factors may not have the last word. The market is eagerly awaiting fresh storage data to be released Thursday morning. Withdrawal expectations range in the 99-120 Bcf area. If realized, a pull in that range would be bearish as it would fall short of the five-year average of 119 Bcf, as well as the year-ago draw of 142 Bcf. However, don’t bet on a bearish number necessarily leading immediately to lower prices. Last week the market tacked on a contrarian 14-cent advance after learning that a paltry 86 Bcf was pulled from the ground during the week ending Jan. 3.

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