In a textbook example of why traders eschew short positions heading into a holiday weekend, natural gas futures erupted higher Tuesday, as a combination of fund and local buying drove the market up 9% to match recent highs. After gapping higher at the open, the March contract wasted precious little time yesterday as it moved above its 40-day moving average in the first 10 minutes of trading. Buyers did not once look back, boosting the prompt month to its highest close since Jan. 2, up 19.1 cents at $2.397. At 111,562, heavy estimated volume served to punctuate the price move.

Traders had their choice of bullish factors at which to point yesterday. New intermediate-term weather forecasts triggered the rally in Tuesday morning Access trading, and non-commercial “fund” traders were quick to enter the buying fray when the open outcry session opened at 10 a.m. EST. According to the latest six- to 10-day forecast released yesterday by the National Weather Service, below normal temperatures are forecast for a large swath of the country extending across much of the Plains and Midwest. Further out on the horizon in its eight- to 14-day outlook, the NWS calls for that cold air mass to migrate eastward to include the Northeast and Ohio River Valley.

And while it is believed that the buying surge was set in motion by these price-constructive weather forecasts, it was technical buying that boosted prices to the $2.40 level. Several market watchers pointed specifically to continued buying interest by funds who are active in reducing their short positions. According to the latest Commitments of Traders Report released Friday by the Commodity Futures Trading Commission, non commercial traders held a net short position of 40,442 as of Feb. 12, down from the record-setting short position of 62,643 held on Jan. 22. For Tom Saal of Pioneer Futures in Miami, the “breakout” target to watch is the 38,000 level. Historically, once below that threshold, non-commercial shorts have typically sent prices higher in a hurry.

However, weather and technical shorts will take a back seat to fresh storage data when the American Gas Association releases its weekly report today. Expectations are for a 110-130 Bcf net withdrawal, which if realized will exceed the 81 Bcf seen at this time last year. Last week the market tumbled lower when it was announced that 156 Bcf was pulled from the ground for the week ending Feb. 8.

For technical trader Ira Hochman, the market’s ability to trade “volume” above the recent benchmark at $2.41 is imperative for the market to continue higher. “By never trading back down to the $1.85 low notched by the expiring February contract, we rejected that move lower. Now we are pressing to the upside. If we can do some work above $2.41, I look for a push to the $2.60-70 area.”

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