MCX-Natural Gas faces important resistance ahead

Akhil Nallamuthu BL Research Bureau | Updated on October 16, 2019

The price of natural gas closed low in the past week, thereby marking the fourth consecutive negative weekly closing. However, after making a low of ₹156, the October futures contract of the commodity on the Multi Commodity Exchange gained on Monday. On the daily chart, one can spot the ‘morning star’ candlestick pattern, an indication of further recovery in the contract. Notably, the contract still trades below the resistance band between ₹166 and ₹170.

In case the price appreciates beyond ₹170, there is a possibility of it rising towards ₹180. But, if weakness persists and the bear trend resumes, it will find support at the previous low of ₹156. A break below that level would mean more selling pressure which may drag the contract to ₹150. Hence, ₹156 and ₹170 are the key levels to watch out for.

The price of generic first futures contract of natural gas is currently trading at $2.8, just below the 23.6 per cent Fibonacci retracement level of the previous downswing. Though the price made a lower low, the daily relative strength index did not register a lower low, thereby indicating a potential bullish divergence.

This indicates lack of bearish momentum. If the commodity capitalises on this and moves up, it will face strong resistance at $2.4 levels, beyond which the contract has the potential to appreciate to $2.7. But if bears gain traction again, the price could decline to test the previous low of $2.18 below which it could slump to the psychological level of $2.

Since the bearish trend seems to be losing momentum, the commodity can appreciate in the upcoming trading sessions. However, as the MCX-Natural Gas futures contract faces stiff resistance at ₹170, traders are recommended to stay on the fence and initiate long positions only if the price breaks above ₹170, with a stop-loss at ₹155.

Published on October 16, 2019

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