MCX-Natural gas likely to remain weak

Akhil Nallamuthu BL Research Bureau | Updated on July 21, 2020 Published on July 22, 2020

MCX-Natural Gas (₹127)

The rally that the August futures contract of natural gas on Multi Commodity Exchange (MCX) was witnessing hit a roadblock at the resistance level of ₹150 in early July. Unable to move beyond that level, the contract reversed the trend immediately and started to fall. The decline has been quick where the contract is now trading around ₹127. Visibly, there is no support until its previous low of ₹121.4, meaning there is more room on the downside.

Certain factors substantiate the bearish outlook. For instance, the price has slipped below the 21-day moving average (DMA) and the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators on the daily chart remains in their respective bearish territory. Considering these factors, the likelihood of further fall seems high.

While ₹121.4 can be the nearest support, a decisive breach of this level can invite more bears, possibly resulting in more intense downtrend. The price could even fall to ₹110. On the other hand, if the contract recovers and moves up, ₹130 can be a hindrance. Above that level, the resistance can be spotted at ₹135; the 21-DMA and the 50 per cent Fibonacci retracement level coincides at this level making it a significant resistance.

On the global front, the generic first contract of natural gas on New York Mercantile Exchange (NYMEX) made a high of $1.92 in the first week of July. However, it was unable to advance further and started to moderate. Last week, it breached the support of $1.7 and the contract looks set to depreciate further.

Trade Strategy:

The contracts on MCX and NYMEX has been in a decline since early July after having rallied during the preceding two weeks. Notably, the major trend of the energy commodity remains bearish, increasing the possibility of further decline in price. Hence, traders can go short in MCX-Natural gas on rallies with stop-loss at ₹135.

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Published on July 22, 2020
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