Commodity Calls

MCX-Natural Gas in a bear grip

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

The spot price of Natural Gas on the MCX breached a key support at ₹145 and marked a low of ₹135.1, lowest since May 2016. Following this, the February futures contract, which had been consolidating in the band between ₹150 and ₹157, slipped below the range. The fresh break down has firmed the bear trend, opening the door for further weakness.

The daily RSI is showing fresh downtick following the decline in price and the Moving Average Convergence Divergence (MACD) on the daily chart is indicating increased bearish momentum, extending further into the negative territory. As price action continues to show lower peak and lower trough, except for a retracement, possibility of a bullish reversal in the near-term looks bleak.

Continuing with the major trend, the contract can be expected to weaken from current level towards ₹134.5, as indicated by Fibonacci extension level. Further depreciation can drag the contract to the support at ₹130. On the other hand, if the contract advances, the 50 per cent Fibonacci retracement level of the recent downtrend at ₹146 can act as a hurdle. Above that level, the contract will face a critical resistance is at ₹150.

On the global front, the generic first contract of Natural Gas on the NYMEX tumbled below the psychological level of $2 and it declined to $1.83, the lowest price since April 2016. Below that level, the contract has a support in the band between $1.61 and $1.69. Any attempt to recover can be limited by $2, which is now a strong resistance.

Trading strategy

As the price of Natural Gas has broken below an important support level, one can take a bearish view. From trading perspective, rather than initiating short positions at current levels, traders can wait and sell MCX-Natural Gas contract if price rebounds to ₹146 for a better risk-reward ratio. Place stop-loss at ₹158.

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Published on January 22, 2020
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