Like an old wooden roller coaster that ratchets its way to the top only to plunge back to earth in a matter of seconds, natural gas futures free-fell yesterday, as traders liquidated weak length acquired over the last several weeks. The gut-wrenching session left the prompt May contract 26.8 cents lower at $5.248.

The market wasted little time showing its colors yesterday. After slipping as much as a dime below Monday’s close in early morning OTC dealings, the May contract gapped lower at the open of the regular open-outcry session. However, the selling had just begun. The market sifted lower from that point, moving beneath May’s 18-day moving average at $5.342 and then piercing beneath, and closing below its 40-day moving average at $5.265. By 7:00 P.M. (EST) last night, the May contract was already 5.8 cents lower at $5.19. By virtue of its gap higher Monday followed by its gap lower Tuesday, the May contract completed a one-day island reversal pattern on the daily charts, technicians told NGI.

A Houston risk manager noted that about 350-360 May contracts changed hands between the $5.24-26 area, lending credence to the assertion that the selling was long liquidation. A popular strategy of technical traders is to buy and sell the market as it moves through the 40-day moving average of the prompt month. And that strategy would have paid off over the last few weeks as the market has moved swiftly in both above and below breaks of the 40-day. For example: If you had bought May futures on April 5 as the market moved above the 40-day moving average at $5.295, you could have ridden the market for more than 30 cents in just three days. Conversely, on March 30 the market cascaded 24.9 cents lower — just one day after it closed below its 40-day moving average.

More than likely however, the market will not duplicate that feat on Wednesday. Instead, most market watchers expect prices to stabilize or even rebound slightly before the storage report. Expectations ahead of that report call for a net injection of 10-40 Bcf, versus a 25 Bcf withdrawal last year and a five-year average withdrawal of 6 Bcf.

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