MCX-Natural Gas set to decline

Akhil Nallamuthu BL Research Bureau | Updated on June 16, 2020

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The July futures contract of natural gas on the Multi Commodity Exchange (MCX), which has been in a downtrend since the beginning of May, was moving in a sideways trend between ₹140 and ₹150 at the start of this month. But on Monday, the contract breached the lower boundary of the range, opening the door for further weakness.

The price is well below the 21-day moving average which is at ₹146. On the daily chart, the contract is forming lower highs and lower lows, indicating considerable bearish momentum.

Substantiating the downward bias, the daily relative strength index (RSI) is showing a fresh downtick and is ruling below the midpoint level of 50. Also, the moving average convergence divergence (MACD) indicator on the daily chart, which is in the negative territory, is turning its trajectory downward.

As the trend is bearish and the price has breached the support at ₹140, it is likely to witness further decline. While ₹130 can act as the immediate support, a break below this level can drag the contract to ₹125. On the other hand, if it reverses the trend and rallies past ₹140, it can advance to ₹146. Subsequent resistance is at ₹150.

On the global front, the generic first contract of natural gas on the New York Mercantile Exchange (Nymex), which has been consolidating in a tight range since the past three weeks, broke the support at $1.75. This has increased the likelihood of the extension of the down-move. Currently trading at $1.65, the nearest support is at $1.55. A drop in price could weigh on the price of the MCX contract.

Trading strategy

The contracts on the MCX and the LME are in bear trend where MCX-Natural Gas has breached the support at ₹140. This has made the case stronger for bears. Hence, traders can short the contract with stop-loss at ₹146.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

Published on June 16, 2020

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