Caught between a bullish short-term weather outlook and a bearish long-term storage situation, traders in the gas pit at Nymex played it safe Friday, electing not to press prices too much in either direction ahead of the weekend. With that the February contract finished the session at $2.204, up 1.9 cents for the day, but down 7.1 cents for the week. Estimated volume was a little less than average, with just 75,087 contracts changing hands.

Heading into the session Friday, traders agreed that it would take a fundamental jolt to send prices outside of last week’s relatively tight $2.14-35 trading range. As it turned out, no fresh news was revealed and prices Friday managed to remain inside Thursday’s $2.18-30 range, thereby notching an inside-day on the daily chart. Bulls were quick to claim the session as a victory because February not only failed to retest Thursday’s $2.18 low, but also managed to post a modest gain for the session. Bears, on the other hand, entered the weekend with the confidence that comes from knowing that the market remains firmly entrenched in a 12-month downtrend.

As is often the case on Monday mornings during the winter months, the market will take its first price cue this morning from updated weather outlooks. In its six- to 10-day forecast released Friday, the National Weather Service called for a return to below normal temperatures for much of the country later this week and this weekend. Further out on the horizon in the eight- to 14-day outlook, the NWS looks for more of the same, especially for the northern half of the country. In fact, the only area of the country that is expected to see above normal mercury readings for the Jan. 19-25 period is South Texas.

For a change, however, weather forecasts might take a back seat to technical data this morning. According to the latest Commitments of Traders data released Friday afternoon by the Commodity Futures Trading Commission, non-commercial traders increased their net short positions to a record 47,104 positions as of last Tuesday. Because they have, over the course of the last five years, predominantly sold the market as it fell and bought the market as it soared, this speculative segment of the market has earned the reputation as a barometer of price direction. When they have increased their shorts the market has fallen, and when they have accrued longs, the market has risen (on-line subscribers may see a graphical representation of this here).

Looking ahead, analysts agree that this large spec short position will cause traders to think twice before fearlessly selling this market. “Even within what may still be a bear market, this should greatly dampen the downside and adds considerably to the short-covering potential,” says Tim Evans of New York-based IFR Pegasus. “We may have to wait for a fundamental trigger, but this set-up looks quite bullish.”

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