After failing to break to beneath pivotal support etched last Wednesday, natural gas futures rocketed higher Monday as commercial traders greeted the return of hot temperatures, and non-commercial traders rushed to cover shorts. The September contract was the biggest beneficiary of the buying surge, closing 20.4 cents higher at $2.965. Estimated volume across all months was moderate, with an estimated 81,811 contracts changing hands.
After a reprieve last week, summer weather returned to the eastern United States Monday, sending heat indexes to the 100 degree mark. Looking ahead, the National Weather Service calls for more of the same, with above-normal temperatures predicted for the northeastern corner of the country through at least Aug 22. Hot temps are also predicted for a large swath of the South, extending from southern Nevada to East Texas. Meanwhile, the Pacific Northwest remains the only area of the country expected to see below-normal mercury readings, the NWS said.
However, hot air was not the sole reason for the price rally, traders agreed. Also at work were technical factors which received a boost when the September contract gapped higher at the opening bell Monday. “We were oversold heading into this week,” a Washington DC-based broker said. “That combined with bullish divergence on several technical systems was an invitation for a rally. The buying really picked up once we passed the $2.88 level,” he continued, referring to the break above a steeply-sloping downtrend line drawn on the daily continuation chart.
Looking ahead, the broker is hesitant to declare the bear dead, however. “I would feel a lot better about the market’s [upside] chances, if we would retest last week’s $2.64 low first. If we move lower, do not make a new low and then make a higher high, that would be a good indication this market has turned.”
Another market watcher agreed that the retest of last week’s lows would be nice for bulls comfort, but said it was not a requirement for a continued rally. “We put in a nice island reversal pattern on the daily [regular-session only] chart,” the Houston-based trader said. “The funds were definitely out there covering their short positions. A settle above $3.00 would flush out a whole new round of buying,” he estimated.
Friday’s Commitment of Traders Report showed that the reportable non-commercials (funds) added another 5,011 contracts of shorts for the week ending Aug. 6, bringing their total exposure to 31,916 contracts. That represents the largest net short position since Feb. 12 when the number of shorts was declining from the 62,643 peak on Jan. 22.
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