Acting on the mentality that Tropical Storm Barry was innocent until proven guilty (see Daily GPI, Aug. 3), natural gas futures tumbled lower Friday morning as traders re-initiated shorts that they had covered just 24 hours prior. As of noon (EDT), the September contract was 19.7 cents lower at $2.995. The market then proceeded sideways for most of the afternoon as sellers took a breather to monitor the storm. They were not finished however, and after gaining confidence the storm was not going to re-intensify Friday, sellers conspired for one last push lower. At the closing bell, the September contract was 22.1 cents lower at $2.971.

“The story [Friday] morning was a lack of buyers,” said Tom Saal of Miami-based Pioneer Futures. “All those weak shorts that covered Thursday when the storm was first announced have re-deployed their (short) positions. As they sold [Friday] morning, there were few buyers willing to step up.”

The search for positive fundamental or technical news doesn’t get much tougher than on Friday, most traders agreed. Even with a tropical storm bearing down on offshore gas production assets in the Gulf of Mexico, the market could not withstand a push below $3.00. And while the September contract has dipped below and closed beneath $3.00 on three other occasions over the past three weeks, it sunk deeper Friday, etching a new 15-month low at $2.94.

However, despite the sell-off seen in September futures last week, Dan Carro of New York-based Rafferty and Associates is not convinced the market has seen the last of $3.00-plus pricing. While admitting that breaking beneath $3.00 was negative, he sets his sights on the $2.95 area, which corresponds to lows notched over the last few weeks in both the September 60-minute and daily chart. “It’s always hard to tell people to buy when it looks bad, but you have to stick with what the trendlines tell you. It’s all part of the discipline of technical trading. Until you break below $2.95 for period of time, you have to be a buyer here,” he said.

If, however, prices open lower and continue downward this week, Dan would not recommend sitting on your hands for too long. Instead he endorses a strategy of shorting the market for a potential run down to the $2.81-82 area. “You’ve got a trendline beneath us that has been in place for nearly two-and-a-half years. You can short this thing on a break of $2.95, but I would look to be a buyer against the bigger trendline support, which comes in at $2.81-82 Monday.”

He may have a point. Upon closer inspection of a September daily chart, one can draw a trendline from lows achieved in January 1999 and connect them with the $2.374 low reached on January 5, 2000. By extending that line forward, you get a slightly upward sloping level of support now seen in the low $2.80s.

A break of that level, adds Carro could lead to a retest of the sideways activity in the $2.50 area from late in 1999 through early 2000, basis the September contract.

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