December natural gas rose Tuesday on extremely light volume as traders scrambled to determine positions and locate funds in the aftermath of the MF Global trading debacle. At the close December had risen 4.9 cents to $3.745 and January had gained 4.0 cents to $3.843. December crude oil added $1.28 to $96.80/bbl.

“Traders are just trying to determine where they stand and trying to get their money out of MF Global. It’s a real cluster and traders are liquidating,” said a New York floor trader.

He added that traders didn’t seem inclined to pursue the short side of the market and “the market seems to have some believers of $3.20 and others of $4.20, so here we sit in the middle in the $3.70s. The market doesn’t have any conviction right now, especially with some mild weather six to 10 days out and there seems to be a lot of convergence right at this level.

“We are seeing some pressure on January and February while December upticks so there is less contango in December-January. People are selling that spread. There are a lot of traders looking for $3.91. At $3.91 to $4.00 the market is well offered and at $3.50 it is well bid.”

Followers of Market Profile will look for the market to trade lower Wednesday. “Tuesday’s value area is $3.674-3.703, and the market will typically test the prior day’s value area. Usually it is the next day,” said Tom Saal, vice president at INTL Hencorp Futures LC in Miami.

Saal also identifies other value areas that in the parlance of Market Profile are viable trading targets. Friday’s value area of $3.840-3.804 has not been tested, as well as an earlier value area at $3.903-3.866.

Significant pricing patterns can be seen when numerous days’ value areas are combined. Saal combined data going back to early October, and prices show a near-perfect bell-shaped curve with a mode at $3.828. That period from early October represents significant “horizontalness” and the trading strategy to take away is that prices will “gravitate towards that mode and then move away, either higher or lower,” he said.

Whether Tuesday’s modest gains will repeat has yet to be determined, but analysts see a pattern to the market with repeated, albeit feeble, rallies followed by progressively lower prices. “This market has tried repeatedly to rally and then hold onto gains — and it just cannot do it. It has the rally part — over and over — down,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. “It just cannot persuade traders that there will be enough baseload demand augmented by enough space heating use to tilt the field enough to support advances long enough for prices to stick on any of them. Even though we all know the calendar will bring colder air with it, underground storage figures are also telling us that we start this heating season with more than enough natural gas in storage to provide the market with supplies through the winter and into April.

“We are very near the records set at this point in previous years, and we look like we are going to see new records made this year. Temperatures need to bring sustained cold for two or three weeks to get traders’ attention.”

Market technicians suggest that if natural gas is going to stage any rally, it better get started soon. “Near term, in any further retreat from the recent $3.978 high, key support for the bulls is the $3.650-3.560 zone,” said Walter Zimmermann, vice president of United-ICAP. Zimmermann said in the intermediate term “still target $3.190 minimum on any reversal lower from this side of the $4.400 level. So the big numbers are $4.400 and $3.190.”

In the bigger picture Zimmermann is looking for a large collapse in energy and equity prices from which natural gas, despite its lack of correlation to petroleum pricing, is not likely to be immune. He believes a falling stock market and stronger dollar are likely to crush energy prices. “[T]wo financial trends have been absolutely toxic to higher energy prices. These two poisonous trends have been lower stock market values and higher U.S. dollar values. From here the stock market is at risk of a sharp and sustained decline while the U.S. dollar appears poised for a sustained advance,” he said in a weekend analysis sent to clients.

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