The June futures contract of natural gas which has been in a downtrend since the beginning of May on the MCX, breached an important support of ₹140 last week. While this has turned the outlook negative for the contract, it managed to hold within a sideways trend. That is, for the past few trading sessions, the price has been oscillating in the band between ₹133 and ₹140.
Notably, the overall trend is bearish and the 21-DMA coincides with ₹140 at the upper band of the range. Hence, the contract could incline towards a downtrend as long as the price remains below ₹140.
Though the trend is bearish, the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators on the daily charts are hinting at bears losing momentum. While the RSI is below the midpoint level of 50, it has been moving sideways since the past week. The MACD, now hovers in the negative region.
On the back of the major downtrend, if the contract descends and slips below ₹133, it might witness considerable selling pressure. Below that level, the contract might weaken to ₹125 and ₹120. But if the contract gathers momentum and moves above the resistance at ₹140, it could rally to ₹150, which coincides with the 38.2 per cent Fibonacci retracement level. A breakout of that level can take the price to ₹154.
On the global front, the generic first contract of natural gas on the New York Mercantile Exchange (Nymex) has been consolidating in a tight range for the past three weeks. It has been oscillating between $1.75 and $1.9.
Trading strategy
Though the major trend is bearish, the contract on the MCX has been in a consolidation phase for the past few trading sessions. Hence, traders can sell MCX-Natural Gas with stop-loss at ₹142 if it breaks below the support at ₹133.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.