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BL Research Bureau
The price of natural gas has been steadily declining since the final week of October. As a result, the January futures on natural gas on the Multi Commodity Exchange (MCX) have fallen from the high of ₹466. The contract broke below the key support at ₹350 in November, accelerating the downfall and making a low of ₹274.9 in early December.
But since then, the contract has been oscillating in a sideways trend, i.e. between ₹275 and ₹300. Although the overall trend is bearish, the recent move sideways indicates a possible loss in momentum. On the other hand, there are no signs of a bullish trend reversal, especially at open interest (OI). It has seen a steady build-up as the price dropped, which is a strong bearish indication, and so, the likelihood of a bullish reversal appears less likely.
Therefore, one can continue to hold a bearish view but wait for confirmation before initiating fresh short positions.
Considering the above factors, one can stay on the sidelines now and initiate fresh sell trades in MCX natural gas January futures if it breaks below ₹275. Place initial stop-loss at ₹300. On the downside, the contract has minor support at ₹260. However, a new breakdown from the support at ₹275 can gather enough momentum to drag the contract below ₹260. Eventually, the futures could drop to ₹228 over the medium-term.
So, when the contract slips below ₹260, revise the stop-loss to ₹280. Liquidate the shorts at ₹228.
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