As I’m watching this three-day short-covering rally develop, I’m already planning for the pullback. That’s the move I’ll be watching for because that’s when the new buyers tend to show up. If they believe in the rally then they’re going to buy the first correction because they have the bottom at $2.592 to lean on. They aren’t trying to pick the bottom, but they will buy if they see an exit.

If buyers do come in on the first pullback then a secondary higher bottom could form, setting in motion the chances of an even steeper rally. The second rally is usually strong because it’s driven by short-covering and new buying. So this is our near-term plan.

The current near-term range is $2.905 to $2.592. Its pivot is $2.749. I’ll be watching this level to see if a test attracts new buyers.

Our current near-term targets are a minor top at $2.905 and the 50-day moving average at $2.987. The latter is critical because it is resistance, a trend indicator and a potential trigger point for an acceleration to the upside. Overcoming the 50-day MA could extend the rally further into an intermediate 50% level at $3.107.

Essentially, over the short-run we’re not chasing the first leg up, but we will be looking for a 50% pullback of the short-covering rally and playing for a secondary higher bottom formation to fuel an even bigger rally over the near-term.

Weather Gave the Bulls a Session

Below-normal temperatures are sitting across the Midwest through May 13 and that is what got the buyers off the sideline Monday. Cooler forecasts at this time of year pull in heating demand when the market was expecting none. Lower-48 gas consumption came in at 65.5 Bcf per day Monday, up 7.0% year over year. That number tells you the weather is already influencing usage. It is not enough to flip the fundamental picture but it gave traders a reason to cover shorts after April’s beating and that was enough to run the market 3% in a session.