June natural gas futures fell Tuesday as the market opened up but was unable to muster sufficient momentum to break higher. Some traders are still optimistic of an advance, however.
At the close June futures retreated 5.6 cents to $4.342 and July dropped 5.3 cents to $4.436. June crude oil continued its decline, giving up 67 cents to $69.41/bbl.
Short-term traders saw the day’s decline as the market not being quite ready to push higher. “I think, it’ just isn’t ready to pop up to the next level so [today was] a bit of profit taking and base building. It’s still staying above near-term support,” said a New York floor trader.
“I’m marking the top of the range at $4.386 and the bottom at $3.81,” said a Washington, DC-based broker. “My overall outlook on natural gas is cautious bullishness. Crude oil has gotten pounded, but natural gas really hasn’t broken down from the top end of the range and has been impressive the last couple of days.”
He added that some technical indicators — MACD (moving average convergence divergence) and RSI (relative strength indicator) — are marching higher. “Until I see them break down I’m betting that we break out to the upside of the trading range. If either of those two indicators break down, I will modify my stance, but for the moment they are holding in a positive mode.
“The measuring rule for a [technical] rectangle is that it is about the size of the existing range. That would take prices up to $4.96 to $4.97, and that is a decent target to shoot for. I would put a buy stop above the market and wait for a firm commitment. If it fails, I would sell the $4.40 or $4.50 calls on the front month so there is not too much time left to expiration,” the broker said.
In spite of plump natural gas storage levels, shoulder-season demand and nonexistent weather, traders now see the gas market in a new trading regime. Before the mindset was one of selling, but that has now changed to one of buying. “We seem to have entered a new time period, one in which buying is now the default mode,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.
Beutel contends that “for more than a year, selling was the course followed by everyday traders on those days during which nothing major seemed to happen. Now we seem to be trending towards an upside default mode or none at all. Either way, this represents a change. Five out of the last seven days have ended with gains. Storage levels are heavy, demand is still light and the weather isn’t helping, all of which suggests that the ‘default mode’ is something worth keeping an eye on.”
Technical analysts urge caution about following the market higher but admit that their data and focus on Elliott Wave techniques does not suggest prices have reached any kind of top. There may be more upside.
“Based on Monday’s price action, we see no evidence of peaking action,” said Brian LaRose, an analyst with United-ICAP. His figures show $4.403, $4.688 and $4.792 as the next objectives, but he offers the caveat that “with June quickly approaching, we urge anyone holding length to proceed with caution into any new highs. Historically, this is not the time of year to be looking for substantial upside,” he said.
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