The natural gas futures on the MCX (Multi Commodity Exchange) witnessed a sharp corrective rally over a couple of weeks. The nearest expiry i.e., November contract, after marking a low of ₹450.3 on September 21, rebounded strongly and is now trading around ₹581 after marking a three-week high of ₹591.6 on Monday. We had expected this corrective rally.
However, the rally is likely to be exhausted since there is a strong resistance of ₹600. Notably, the 50-day moving average, which now lies at ₹591, can be a hurdle for the bulls.
Therefore, we expect the contract reverse lower from the current level of ₹581 and resume the downtrend. This move can drag the contract to ₹450. If this level is breached, we could see a quick decline to ₹400.
On the other hand, if the resistance at ₹600 is decisively breached, the trend will turn bullish where the price can be expected to rise to ₹650, the immediate resistance above ₹600. Subsequent resistance is at ₹700.
We suggested initiating shorts in three legs over the past couple of weeks with an average sell price of ₹521 with initial stop-loss at ₹600. Traders can hold these positions.
Shift the stop-loss down to ₹555 when the price slips below ₹515. Tighten it further to ₹535 when price goes below ₹485. Liquidate the shorts at ₹450.