In an attempt to keep up with crude futures, which recorded another record high Monday, natural gas futures soared higher on the day as some traders admitted that the high volatility put them on the sidelines. April futures jumped 25.5 cents to $10.024 and May futures rallied as well — gaining 25.6 cents to $10.075.

As supply concerns continued to dominate, April crude oil set a record close Monday at $107.90/bbl, up $2.75 after trading as high as $108/bbl.

“What a wacky day,” said a New York floor trader. He noted that the front of the natural gas board was a “freight train and no one wanted to step in front of it [and sell].” He added that the funds, especially technical trading funds, were aggressively playing the market from the long side, and that — in combination with traders buying natural gas in sympathy with crude oil — pushed the market higher. “There was also new buying by funds entering the market,” he said.

As crazy as the trading was, some traders noted that a strategy using Market Profile worked like a charm. The strategy is to buy if the market opens lower following a “trend day.”

Tom Saal in his work with the Market Profile said in his morning report to fade (buy) an open to the April contract less than Friday’s trend-day settlement of $9.769. April opened at $9.735 and triggered the trade. “It worked and it’s supposed to work 80% of the time. You tested back to unchanged, and then if you go through ‘unchanged’ then the next target is the trend-day space [at $9.81],” he said.

The Market Profile was originally developed by legendary trader Peter Steidlmayer and applied to grain trading. It is a form of technical analysis in that the market information derived from it is mechanical and calculated from a firm set of market parameters and definitions. The most significant difference between Market Profile and conventional technical analysis is that technical analysis attempts to determine market direction from historical data, often in the form of daily bar charts, but Market Profile uses the evolving market as its foundation to ascertain future market direction.

Saal added that overall there was a general reluctance to make trades Monday. “People don’t know what to do with the market,” he said. “They don’t want to sell it because they are afraid it is going to explode, and they don’t want to buy it because they think it is way overpriced.”

Other traders see opposing market forces in the form of strong petroleum prices offset by an economy that continues to stumble. “The soaring distillates prices seem to have put a strong bid under the gas market. Like last week, the real negative news continues to be the deteriorating U.S. economy,” said Mike DeVooght of DEVO Capital, a Colorado trading and risk management firm. According to DeVooght, a weak economy is likely to eventually cause lower natural gas prices “even if it is cheap versus the complex,” he said in a note to clients.

DeVooght, however, continues to maintain current trading positions. He advises trading accounts to hold short April futures at $8 and a spread consisting of short October and long January at a differential of 70 to 75 cents. End-users should stand aside, and producers should hold short a summer strip for a small position at $7.900 to $8 and an additional summer strip established at $8.250 to $8.350 for 50% of production, he advised.

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