Stocks

MCX-Natural gas: Go long in dips

Akhil Nallamuthu BL Research Bureau | Updated on August 18, 2020

Natural gas emits between 45% and 55% fewer greenhouse gas emissions and less than one-tenth of the air pollutants of coal when used to generate electricity.   -  Reuters

The September futures contract of natural gas on Multi Commodity Exchange (MCX) has been in an uptrend since mid-July. It took support at ₹135 and has been on a rally for a little over three weeks. Last week, it broke out of a resistance level of ₹180, opening the door for further strengthening.

The price lies well above the 21-day moving average (21-DMA) and it has been making higher highs, indicating a strong upward momentum. This substantiated by the moving average convergence divergence on the daily chart, where the indicator retains its positive slope. But the daily relative strength index has not formed fresh high. However, it remains in the bullish region. Notably, as long as the price trades above the 21-DMA, the outlook can remain positive.

The contract is likely to advance from the current levels, probably towards ₹200 because of the prevailing bullish trend. A breakout of that level can result in the extension of the uptrend. The price level of ₹206 can be the immediate hurdle above ₹200. On the other hand, if the contract depreciates, ₹180 can provide good support. Subsequent support is at ₹170.

Globally, the price of natural gas is going up. The generic first contract on New York Mercantile Exchange (NYMEX) rallied past the resistance of $2.28 last week and it is now hovering at $2.35. As the trend looks bullish, the contract is likely to extend the rally in the upcoming sessions. Resistance levels are $2.4 and $2.5. Rise in NYMEX contract price can positively influence the price of the MCX contract.

 

 

Trading Strategy:

The contract on MCX and NYMEX breached their respective resistances last Friday and the positive trend looks intact, at least in the near-term. Since MCX-Natural gas has moved above the resistance of ₹180, the contract is likely to clock further gains. So, traders can buy the contract in declines with stop-loss at ₹170.

Published on August 18, 2020

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