Natural gas price fires up

Natural gas prices had been under pressure since last month. But the recent reversal in prices has given a breather and eased the downside pressure.

The natural gas futures contract on the Multi Commodity Exchange (MCX) has reversed sharply higher since last week. Prior to this reversal, the contract was in a strong downtrend.

The rally since last week has marked the end of this downtrend and has signalled the beginning of a fresh upmove. This bounce back gives a good opportunity for medium-term investors to take long positions in the contract.

Medium-term view: The MCX natural gas contract was in a free fall from its high of ₹225.2 per mmBtu recorded on October 13. This fall halted at a low of ₹170.9 in the second week of this month. The contract however has subsequently reversed higher from this low and has surged 18.5 per cent from there to the current levels of ₹202.5.

The outlook has turned bullish. Also the price action on the daily chart shows an inverted head-and-shoulder reversal pattern, which confirms the end of the downtrend that was in place since October. The neckline of this pattern is at around ₹191. Immediate resistance is at ₹205.

A strong break above this level can take the contract higher to ₹212 in the short term, which is the target level of the inverted head and shoulder pattern.

Inability to break above ₹212 may trigger a corrective fall to ₹205 or even ₹200. But a strong break above ₹212 will boost the bullish momentum. Such a break can take the contract higher to ₹230 or ₹235 over the medium term.

Traders with a medium-term perspective can go long. Stop-loss can be placed at ₹189 for the target of ₹225. Accumulate longs on dips near ₹195. Revise the stop-loss higher to ₹210 as soon as the contract moves higher to ₹215.

The medium-term bullish outlook will get negated only if the contract declines decisively below ₹180. But such a strong fall looks unlikely at the moment.