NatGas Futures Fall Below Important Support Level, NGI Reports

Business Wire

posted: 16 DAYS 18 HOURS AGO

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Natural gas futures bulls were corralled on Tuesday as the December contract reversed course from Monday's gains and dropped below the important $4.60 support level. The prompt-month contract put in a morning low of $4.436 and was trading at $4.478 as of 1:45 p.m. EST, down 19.2 cents from Monday’s finish.

One broker said the break of $4.60 came as somewhat of a surprise. "I thought we might hold above $4.60, but it appears this market is still focused on weakness,” said Tom Saal, senior vice president of energy trading at Hencorp Futures LC in Miami. “The $4.60 price area is very important because for 10 years it was the high for the contract. Below that, support is down at $4.225, which I don't think is out of the question."

He believes natural gas futures are simply following the weather forecasts for now. "Every year it seems that we go through the routine of trading the most recent near-term weather forecast," he said. "The latest near-term forecast, which has so far been correct, is for mild weather. If some cold shows up, then we'll likely see a turn higher in futures."

In markets as volatile as energy, Saal said traders need to use all of the resources at their disposal to develop a sound strategy. The broker noted that one such new tool is the disaggregated Commitments of Traders data, which the U.S. Commodity Futures Trading Commission (CFTC) recently unveiled to give a more detailed snapshot of the types of market participants and their current positions in an effort to boost market transparency.

"Looking at the new data from one week to the next, it is hard to identify specific trends," Saal noted. "But over a period of time it helps you to see who is doing what in the market. There is no question that the new disaggregated data give you a better understanding about what these sub-groups of traders are doing in the market.

"Looking at the new data, it looks like speculators certainly played a part in the mega run-up in natural gas futures to a high of $13.694 last year. Some of it was due to short-covering by producers, who were probably up against margin calls, and the managed money segment -- or funds -- followed the trend by increasing their long positions."

Saal noted that on Feb. 5, 2008 when front-month futures were trading at $7.942, the Producer, Merchant, Processor and User segment was short 199,464 contracts and the Managed Money segment was long 146,140 contracts. On July 2, 2008 when futures reached their peak of $13.694, the Producer, Merchant, Processor and User segment was short 147,692 contracts and the Managed Money segment was long 282,638 contracts.

“Basically the data shows that during the run-up of last year, both groups were buying when normally they travel in opposite directions,” Saal said. “It is important to be able to see the whole playing field when lining up your next move.”

Saal will be joining colleague Ed Kennedy on Nov. 19-20 in Houston to host a seminar: Where's the Market Going? And What Can You Do About it? The seminar will focus on the new disaggregated CFTC data as well as other trading tools and strategies such as supply-demand balance approach versus marginal analysis, Market Profile, moving average, stochastics and Fibonacci retracements. Saal and Kennedy will also help attendees understand the types of risk that exist and use futures and options to hedge that risk, while showing examples of relevant and timely hedges you can use in this market.

About the Natural Gas Futures Price Seminar

Saal and Kennedy will be taking time off from active natural gas futures trading, in a repeat of the very popular Natural Gas Futures Hedging Seminar, at the Magnolia Hotel in Houston, Nov. 19-20, 2009.

For more information visit http://workshops.gasmart.com