Buoyed by the first truly bullish weather report of the season, natural gas futures ambled higher Friday as speculative traders covered their shorts ahead of the weekend. Closing at $3.922, the July contract was 13.2 cents higher on the day, but 8.7 cents lower on the week. Estimated volume was light with only 55,639 contracts changing hands.

The biggest news of the day came in the form of the medium range weather outlook. According to the latest 6- to 10-day forecast released Friday by the National Weather Service, above-normal temperatures are expected for a protracted area of the country extending from New England to California. In fact, the only areas of the country that are expected to see normal temperatures this week are the northern third of the country from the Great Lakes west, and the state of Florida.

Traders were quick to point to the revised weather forecast as the source of Friday’s buying surge. While forecasts earlier in the week put out by both private and governmental agencies had called for pockets of warm air, they were nowhere near as bullish as the forecast released Friday by the NWS.

However, warm weather in June was not the only factor at work Friday. Also of influence was the market’s inability to retest the $3.67 low from the week prior. With lows of $3.73, $3.75, and $3.725 Wednesday through Friday, it is clear that buyers were waiting in the low- to mid- $3.70s to repel any potential sell-off.

Looking ahead, that stand-off may be just one of the skirmishes that await the bulls and bears as they battle for market supremacy. For Jerry Rafferty of New York-based Rafferty Technical Research, the weekly chart has formed a wedge pattern comprised of a horizontal level of support at $3.61, corresponding to the spot low from last July and a sloping downtrend line drawn off the recent prompt month highs. Depending on how aggressively the latter is drawn, resistance is seen at both at $3.95-96 and at $4.08-09.

“Nat gas is in a very interesting area of battle lines. The bulls have the above-mentioned support to lean on and the bears will use the downward sloping lines of resistance to sell against. Both parties have to be careful of course, because whichever side gives out, there will be a very sharp reaction the other way,” Rafferty said.

Tom Saal, of Miami-based Pioneer Futures agrees, adding that the only thing you can count on for sure when the weather heats up, is volatility. “Sure, cash prices were weaker [last] week. That’s a result of shoulder month pricing when there’s no demand. That will change when the first warm weather hits. You can expect large swings both up and down for the next couple months. Don’t get lulled into a false sense of security just because cash prices have come off a little.”

Meanwhile, Jay Levine of New Hampshire-based Advest Futures, believes that what we witnessed on Friday was nothing more than a “relief rally” in an otherwise bear market. Accordingly, he expects any additional upside to be muted by scale-up selling pressure. “I would look to sell this thing on any further strength,” he reasoned. “I am advising my clients to initiate shorts or roll out of their longs on a move to the $3.98-4.02 area, risking 3-4 cents on the trade.”

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