Natural gas futures finished on a sour note for bulls Fridayastechnical follow-through selling met with a bearish weather outlookfor this week. The November contract finished at $5.008, down 14.4cents on the day, 17.8 cents lower for the week, and a crushing55.7 cents off its high, reached less than two weeks ago.
Traders were quick to point to weather forecasts calling for adramatic warm-up to follow the brief shot of cold air much of thenation was due to experience over the weekend. According to thelatest six- to 10-day forecast released Friday by the NationalWeather Service, above-normal temperatures are expected from theRocky Mountains east, comprising roughly two-thirds of the country.Below-normal temperatures will be confined to extreme northern andsouthern California as well as parts of Arizona, Nevada and Oregon.All other areas, measuring roughly a quarter of entire country, canexpect normal readings, NWS said.
However, weather was not the sole factor impacting traders’decisions Friday. Also of consequence were technicals, which haveturned very bearish over the past couple of weeks. Since carvingout its life-of-contract high at $5.565 on Sept 26, the Novembercontract has fallen into a number of technical pitfalls. First wasthe Sept. 28 break below the steeply sloping uptrend line that hassupported the market lows since the end of July. The next failurewas the break below $5.235, which was significant because it stoodas the intermediate low between two highs ($5.495 and $5.565)reached on the November chart during the latter half of September.The third strike came Friday when November prices failed to holdabove another key level of trendline support at $5.08.
Looking ahead, traders are focused on the 40-day moving average,which at just a fraction of a cent below Friday’s closing price,stands as the next downside objective. Historically, fund tradershave used the 40-day moving average as a entry/exit indicator,buying as the price level moves above it and selling as the pricelevel moves below it.
Since breaking above its 40-day moving average back on Aug. 2,the market has witnessed a steady accumulation of non-commercialnet long positions. According to the Commodity Futures TradingCommission, non-commercials held a net long position of 24,809 onSept. 19, but have since liquidated a portion of those holdings. Asof Oct. 3 they held a net long position of only 16,364. leadingsome traders to speculate that they could continue to unload theirlong holdings, especially on a break and settlement below the40-day moving average. As of Friday’s close, the 40-day movingaverage for November was $5.001.
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