November natural gas futures retreated following pronounced weakness in petroleum and equity markets Friday. Traders pointed to technical weakness with little in the way of support until prices fall another $1.

November futures skidded 18 cents to $6.239 and December lost 15.7 cents to $6.462. December crude oil fell another $3.69 to $64.15/bbl and the Dow Jones Industrial Average shed 312 points to 8,378.

The falling prices found interested buyers. “We bought a lot of gas for our marketing companies this morning,” said a Washington, DC-based broker. He added that “the producers hated the margin calls on the way up and said ‘I’m never going to sell this market again,’ but now they are saying ‘what was I thinking.'”

From a technical perspective the broker noted that the market had a nice consolidation and was expecting “more of a bounce, but no such luck. On the weekly chart there is no divergence, and everything is pointed down. The next support is at $5.25, the lows of October 2007,” he said.

A technical divergence periodically occurs on price charts plotting daily price data along side a momentum indicator such as the Relative Strength Index or Stochastics. Traders will look for indications after a major market move either higher or lower for a momentum indicator to move in the opposite direction or “diverge” from price movement. After or at the end of a prolonged price downturn, a rising momentum indicator will often predict an eventual turnaround in prices.

“Technically the market looks weak, and fundamentally people are concerned about the economy. OPEC tried to cut production, but the markets are saying ‘I’ll believe it when I see it.’ The market looks like it wants to continue lower and we just have to find our footing here.”

Footing may be found in the near-term weather outlook. The MDAEarthSat six- to 10-day forecast calls for cooler temperatures. In its morning analysis MDAEarthSat noticed that cold weather had increased in the three- to five-day forecast and that heating demand would be increased due to “formidable cold early on.” However, Director Matt Rogers said temperatures could fall into the “much below” or even the “strong below” categories on days six and seven.

The cold temperatures may not be limited to the East. “There are also still hints in the European [model] of another brush of colder weather for the Upper Midwest and Great Lakes late [in the period], holding back sustained warmth. The West and Plains see the best chances for warm conditions,” Rogers said.

Falling natural gas prices themselves may signal the end of the decline. With prices so close to a marginal cost of production, roughly pegged at around $7/MMBtu, the likelihood of decreased production looms. “Although we were surprised by Thursday’s fresh lows in the face of a seemingly supportive storage figure and a stronger oil market, we are forced to concede to the broad-based de-leveraging that is taking place across the petroleum and equity spectrums,” said Jim Ritterbusch of Ritterbusch and Associates. He added that he was “reluctant to adopt a bearish stance” since risk-reward ratios are currently unfavorable in his view.

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