On the heels of a three-day, 77-cent price rally, natural gas futures took a much-needed breather Tuesday as light profit taking by day traders and commercial hedgers demoted the prompt contract off its recent high. The April contract closed at $3.256, down 4.9 cents for the session, but more than a dollar above its Jan. 28 low. Estimated volume of 121,262 was heavy considering the modest price retreat.

Several brokers and traders contacted by NGI yesterday noted that buy-the-dip buyers were quick to jump into the fray Tuesday when prices fell below the technical threshold at $3.27. After bottoming out at $3.225 at about 11:30 p.m. EST, the April contract plodded higher in the afternoon. A Washington, DC-based broker remained bullish despite the setback. “What we saw was orderly selling rather than panicked long liquidation. This was nothing more than a correction in a bigger uptrend.”

“A keen sense of the tenuous,” said Ed Kennedy of Pioneer Futures in Miami, referring to the market’s choppy trading activity. “There is no price control at this level. A move above $3.32 and there is a high probability that prices will move 15 cents higher and a good probability of a 30-cent rally.” On the downside, things are just as volatile, he continued. “If this remains below $3.26, we could be sucked into a vacuum that could lead us down to $3.10.”

While some traders thrive on this volatility, an equal number are perturbed by it. Kennedy believes the two most affected groups are small speculative day traders who get stopped out by the volatility and end-users who lose a true sense of the price level when prices move so radically.

When asked to choose which direction prices are headed in the short term, Kennedy favors a consolidation lower Wednesday ahead of the release of fresh storage data. Expectations ahead of that report are focused on a wide-ranging, 60-90 Bcf withdrawal, which would exceed the year-ago drawdown of 23 Bcf and serve to shrink the year-on-year surplus currently at 897 Bcf. Last week the market dropped 14.8 cents upon the announcement that a whopping 140 Bcf was pulled from underground storage facilities. However, since that time the market has been a bull’s dream as prices have bounced off the $2.75 low notched early Thursday.

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