The spike in natural gas futures prices to record levels Thursday can be directly attributed to the fact that major energy markets are experiencing their first real winter storm of the season with sustained cold, according to Sandy “Trot” Goldfarb, one of the largest natural gas local traders.

Speaking at NGI‘s Natural Gas Futures workshop at the New York Mercantile Exchange on Thursday afternoon, Trot predicted the futures market’s afternoon path. “This market could go up on this move to between $15.020 and $15.280,” he told attendees around noon EST. “A couple of the big players are caught way short and the market is going to find a way to [draw them out.]”

In the last half-hour of trading in Thursday’s regular session, the January contract hit a new all-time prompt month high of $15.100, unseating the old record of $14.750 that was set by the November 2005 futures contract on Oct. 5. January natural gas ended up settling at a new all-time prompt month high settle Thursday at $14.994, up an incredible $1.294 for the day (see related story).

Trot said that PIRA Energy issued a report a week-and-a-half-ago that futures were going to drop $2 to the $9 dollar area, “but we got the first big winter storm and that’s kind of like the first hurricane — it always tends to drive the market up,” he said. “This market’s behavior is typical for the first big cold front of the year.”

Trot said the storage report was really a nonfactor in the move because “the weather trumped storage [Thursday].” He added that you can be long and wrong, but if your short and wrong, you are out of a job. “Natgas is the high-rollers table and the last two years have been the toughest.”

Looking at how high the market might go this winter, Trot said the next move could be $15.49 then $16.46 and then $17.20. “There is no way to predict” it, he said. The problem with forecasting is that the higher you go, the thinner the market becomes. This increases the volatility, he added.

Looking ahead, there are two other factors that may increase volatility and the overall price level. Any sort of supply side shock such as a pipeline outage, allocation or constraint could lead to higher prices. The other is margin calls, where short traders would be forced to either meet the additional margin requirement or buy back their shorts.

Trot understands that it is easy to get caught in the emotion of the market. It is for this reason that he has a trading system that he sticks to. “You have to be disciplined,” he said. “You have to go into the trading day with defined levels and positions.” For Trot, the tool of choice is Market Profile, a technical trading system developed by legendary stock market technician Peter Steidlmayer. Market Profile attempts to predict a market’s fair value using its recent history of price action plotted versus time.

For Trot, the benefit of Market Profile is in its simplicity. “There is only one way to read it,” Trot said. “It sends well-defined signals. With other systems, there is some level of interpretation necessary.”

As for why he doesn’t look at fundamentals, Trot believes that fundamental information out there is already priced into the market. Essentially, it is old news as soon as it is released, he said. Plus, Trot typically talks to approximately 15 people before the open each morning. “Any time there are 12 or more in agreement, the market has a knack for moving the other direction,” he said.

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