Alleviating oversold conditions created on the move lower over the past couple weeks, natural gas futures rebounded strongly Tuesday, as traders covered shorts amid undeniably bullish technical conditions. After gapping higher at the open, a steady flow of buying propelled the market to its highest level since May 1. At the closing bell, June was 25.9 cents higher at $4.653.

Market watchers agreed that yesterday’s $4.48 opening trade set the tone for the price rally. No sooner had the market filled in the $4.415-440 chart gap lower from a week ago than traders had notched a new gap on the daily chart. Technical traders were waiting for just this type of opportunity to step up and buy the market.

“Since bottoming out at $4.145 four days ago, natural gas prices have climbed steadily each day,” said Jerry Rafferty of New York-based Rafferty and Associates Tuesday morning. “As we look at the charts we can see that the rally has gone as far as it can go without creating a breakout of the downtrend line. No matter what happens at this minor number, the reaction is not likely to create a major reversal in the downtrend, but a violation above $4.44 can certainly trigger a rally that carries up to $4.750 or $4.870…. Considering how many things could happen going into the Summer and considering how far the market has fallen, a rally up to the above-mentioned resistance is very likely.”

However, in the intermediate to long term, he remains price-bearish and recommends anyone who caught the rally from $4.415 look to sell out of those positions as the market tests either $4.75 or $4.87. While he admits that a move back up to $5.00 is certainly possible in the bigger picture, he maintains that the market is in trouble and will likely see strong resistance just above current levels.

Fundamentally, that trouble could come as soon as today when the American Gas Association releases what recently has been a bear pill for traders. Expectations ahead of that report call for a injection of 100-110 Bcf versus 46 Bcf last year and a five-year average of 70 Bcf. Following two straight weeks of 100+ Bcf injections, it deserves mention here that never before in the more than seven year history of AGA storage data has 100+ Bcf been injected into the ground in three consecutive weeks.

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