Portfolio

Natural Gas faces a key barrier ahead

Akhil Nallamuthu BL Research Bureau | Updated on September 11, 2019 Published on September 10, 2019

MCX-Natural Gas (₹186.1) Natural gas in Multi Commodity Exchange rallied strongly on Monday as it closed the session with a solid gain of 3.9 per cent at ₹186.1 per mmBtu. The bullish momentum in the September month futures contract last week is the continuation of a strong uptrend since the beginning of the month during which it breached a key resistance at ₹174 which adds fuel to the momentum. The month to date gain of the contract is 12.7 per cent as per the closing price on Monday.

Even worse than expected inventory data could only stop the rally temporarily. Hence, the contract does not witness any weakness as of now, but it faces a resistance ahead at ₹190, which is an important level in terms of establishing long term trend. If the bullish trend sustains and moves past that level, the contract advancing towards the important level of ₹200 cannot be ruled out. Alternatively, if the contract runs out of steam and exhibits weakness, the likely scenario would be that it will witness a pull back towards ₹173 levels and one need to observe how the price reacts to that support. If that support arrests the correction, the contract will most probably resume its uptrend towards subsequent resistance levels.

Global trend

Generic first Natural Gas futures contract made a 52-week low at $2.02 per mmBtu and has been appreciating with a quick pace to $2.62 levels within a span of one-month. It went past the critical resistance band between $2.47 and $2.50 with ease and is currently approaching a resistance at $2.67. In case if the price goes past that level, one can evaluate the possibility of a new long-term bullish trend being established. The next hurdle for the contract will be at $2.78 levels.

On the other hand, if the price drops on the back of profit booking, the price might retest support at $2.50 levels.

Until the contract stays above that level, the bullish trend will stay intact. But if the price falls below that level, it might find a dynamic support at 100-day moving average, which is currently at $2.37.

Trade Strategy

Since the contract is trading near a resistance at ₹190, and a valid stop loss for long positions are a little deep from current levels, new long trades can wait and initiated on pull backs. Hence the strategy should be to maintain bullish bias and buy on dips with stop loss at ₹173.

Published on September 10, 2019
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