Though it opened and closed at almost the same level, the natural gas futures market was anything but a kiddie’s ride Tuesday as waves of buying and selling led prices on a roller coaster of trading activity.

After carving out a wide, 36-cent trading range, the November contract settled at $5.475, down 7.2 cents for the session and just 1.5 cents above its opening trade. At 92,294, estimated volume was extremely high for the second-straight session as all market segments took part in the day’s events.

Despite the profit-taking seen Monday, most traders agreed that additional softness was possible on Tuesday. After an early rally failed to impress, bears got their opportunity at about 11:30 a.m. EDT Tuesday. Locals added to the selling pressure and it took less than two hours for prices to drop 36 cents. But in similar fashion to Monday’s sell-off, Tuesday’s downdraft also ran into bargain buying near support at $5.36-39.

“Option-related futures buying kicked in at that point,” chipped in Ed Kennedy of Commercial Brokerage Corp. in Miami. “There was a spate of at-the-money call option buying and the writers of those options were seen buying futures to lay off their delta hedges,” he continued. The subsequent up move caught some locals short, and prices rebounded to the close.

With natural gas prices having covered a wide, $1.365 swath since late last month when the November contract became spot month, traders are beginning to wonder whether this type of volatility is here to stay for a while. Kyle Cooper of Citigroup admits that fundamental analysis was useless to explain Tuesday’s price action. “Why was natural gas worth $5.45 early [Monday] morning, $5.72 a little more than an hour later, only $5.36 at lunchtime and $5.475 at the end of the session? The locals and funds are becoming ever more important and contribute to recent volatility. That is not likely to change in the immediate future.”

But even technical analysis is open to interpretation right now. Tim Evans of IFR Pegasus in New York is short on paper from $5.36 with a buy stop placed at $5.63 to limit his risk. His downside objective is $4.565. Conversely, Ed Kennedy looks higher. Specifically, he points to Bollinger bands which on Tuesday correctly suggested that buyers might want to step in when prices dipped into the mid- to upper $5.30s.

On the upside, resistance is seen at recent highs seen Tuesday and Friday at $5.72 and $5.80. A break higher would likely lead to a run to $5.90-95, completing the rally off the October low. Below $5.36, November futures has downside objectives at $5.19 and $5.04, according to Elliot Wave analysis.

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