With a wide variety of storage estimates and medium-range weather forecasts, natural gas traders turned to technical factors Wednesday morning as they bid prices off recent lows and tested overhead resistance. The January contract managed a 19-cent rebound to $4.365 in just 90 minutes, but resistance in the mid-$4.30s held and prices then retraced lower. January finished at $4.298, up 7.2 cents for the day, but 6.7 cents off its $4.365 high for the session.

“We’re not falling in love with this market, but we still feel it has more upside potential than downside,” said George Leide of New York-based Rafferty Technical Research. “We would like to be a buyer as close to $4.13 — or even better at $4.00 — as possible, looking for a run to the $4.50 level. Once there, we would look for a break higher to quickly take us to $4.80.” Alternatively, a break below $4.00 would prompt Leide to reevaluate his cautiously bullish stance.

In the short-term, however, Leide is less confident with being long, pointing to the choppy volatile trading action the market has experienced lately. “This market is really feeling the effects of fewer trading companies. Trading has definitely gotten thinner and more volatile. This thing can change direction on a dime.”

If pressed to enter a position before the release of Thursday’s storage report, Leide would pick up some length below $4.30. “There are rumors out there that we are going to get a big withdrawal [Thursday].” With an upside objective at $4.42-50 in the short-run, buying at a level above $4.30, he feels, would not yield a decent enough risk-to-reward ratio.

Ed Kennedy of Commercial Brokerage Corp in Miami looks for a 53 Bcf withdrawal, which is near the bottom of the wide 40-99 Bcf range of market expectations. “There is an equal amount of ambiguity over the storage report as there is about the weather forecast,” he said. “Everyone is predicting a big draw based on the high accumulation of heating degree days last week. What they are failing to take into account is the amount of demand lost due to industrial plant shut downs over the holiday weekend.” Because of this, Kennedy believes there is a greater potential for a bearish surprise Thursday morning than for a bullish surprise.

The market shot 12 cents higher Monday on the news that 49 Bcf was pulled from storage for the week ending Nov. 22. During the same week last year, 4 Bcf was injected into storage, and the five-year average is calculated to be a 17 Bcf withdrawal. The common range of expectations call for a 75-85 Bcf pull. Currently, storage stands 203 Bcf below year ago levels. Because it is likely the next couple storage withdrawals will dwarf their year-ago comparisons, analysts suggest that deficit could double by the end of the year.

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