In the last couple of weeks, natural gas prices rallied sharply. Consequently, the futures contract of this energy commodity on the Multi Commodity Exchange (MCX) rallied after taking support at ₹500. Notably, the December series marked a high of ₹667 last week before falling to the current level of ₹592. Thus, the contract could not complete a weekly close above ₹600, which is a strong resistance.
We expect natural gas futures to decline from the current level where it could touch ₹500, a support. Subsequent support is at ₹475. On the other hand, if the contract recovers and gives a daily close above ₹630, the trend might turn in bulls’ favour. Above ₹630, it could retest the prior high at ₹667.
Trade strategy
Considering the above factors, traders can risk going short on the MCX-Natural gas futures (December contract). That is, short the contract at the current level of ₹592 and add more shorts when price rallies to ₹615. Place initial stop-loss at ₹642.
When the contract falls below ₹550, revise the stop-loss down to ₹585. Liquidate all the shorts at ₹500 because there could be a bounce off this support.