Commodity Calls

MCX-Natural gas breaches key base

Akhil Nallamuthu, BL Research Bureau | Updated on April 06, 2020 Published on April 07, 2020

The April futures contract of natural gas in the Multi Commodity Exchange (MCX) has been moving in a broad sideways trend between ₹125 and ₹150 for the last two months. But it breached and closed below the lower limit of the range at ₹125 last Friday. This level is important as the contract had bounced thrice over the past five weeks. Hence, the contract might chart another leg of downtrend.

The price remains below the 21-day moving average (DMA), indicating that the near-term trend is bearish. Additionally, the Moving Average Convergence Divergence (MACD) indicator in the daily chart has extended further into negative territory. The daily Relative Strength Index (RSI) indicator stays below the midpoint level of 50. Also, the price action in the daily chart has been forming lower lows and lower highs — a bearish indication. These factors indicate a considerable downtrend and moreover, the major trend remains bearish.

As the contract has breached the support at ₹125 and the overall trend being bearish, the price might decline to ₹110 in the coming days. Below that level, the support is at ₹106.

 

 

Consolidation phase on NYMEX

On the other hand, if the contract manages to invalidate the breakdown and moves back above ₹125, it will face a resistance at ₹133 — its 21-DMA. A breakout of that level can lift the contract to ₹140. In the New York Mercantile Exchange (NYMEX), the generic first contract of natural gas has been in a consolidation phase for the last two weeks, fluctuating between $1.52 and $1.72. Nevertheless, the contract is in a major downtrend and is likely to breach the support at $1.52.

Trading strategy

The major trend of natural gas in MCX and LME is bearish. In MCX, the futures contract has breached an important support, opening the door for further decline. So, traders can remain bearish and initiate fresh short positions on rallies with a stop-loss at ₹135.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

Published on April 07, 2020

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