Led by what one New York local trader called “massive shortcovering,” the futures market erupted 27.1 cents higher yesterdayin a rally that left many market participants incredulous. Comingon the heels of fresh storage data and subsequent gains in Accesstrading Wednesday, the October contract gapped higher at the openyesterday and never looked back, finishing at $2.697.

Many sources contacted by NGI were at a loss to explain theprice spike, which comes at a relatively low demand period fornatural gas and at a time when there is no tropical activity in theGulf of Mexico and Atlantic Ocean.

But Ira Hochman, of New York-based Trot Trading Corp., had adifferent take on yesterday’s price action. “There was a hugestandoff at $2.40. Funds were waiting to sell into a break lower,while [commercial traders] had already sold short all the way downfrom the $2.60s. As soon as we got the gap higher open [Thursday]morning, it was a buy and leave the ring day,” he said.

Not only did yesterday’s $2.52 open create a gap higher,continued Hochman, but it also produced what he feels is the mostbullish of all chart formations-an island reversal bottom.

Although the market may ease today as traders take profits aheadof the weekend, he remains a bull in the long term. “Bulls stillhave some work to do to turn the weekly charts up. If they can getpast $2.92 then it will confirm $2.40 as a good bottom that willsupport a long term bull run.

It’s unclear, however, what the impetus might be for that movenow that the shorts have cashed out. Speculative buying on eitherside of the 40-day moving average could be the key, said Hochman.Locals might try to push it higher before the October contractbreaks above the 40-day. But once it’s above that mark, expect thefunds to start rebuilding their longs, he said. The 40-day movingaverage for October is currently $2.733.

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