The natural gas futures (continuous contract) on the MCX (Multi Commodity Exchange) slipped below the key support at ₹435 last week and opened the door for further fall towards the next support, i.e., ₹330-360.
However, the downswing may take some time as derivatives data support the sellers’ move of booking profits. After closing last week at ₹409.8, the MCX natural gas October contract rallied on Monday to close at ₹423.2. As this up move, the MCX cumulative Open Interest (OI) dropped to 12,376 contracts compared to 15,594 on Friday. This indicates short-covering, and if more shorts book profits, we can see a further rise in price from the current level.
Since the October contract is set for expiry on October 26, consider November futures to buy more time for the trade to pan out.
Considering November futures, participants can expect a corrective rally to ₹525-550 price region. But, the current level is a potential resistance. We suggest traders execute shorts in three legs. That is, initiate shorts worth one-fourth of the intended amount at the current level of ₹482. Add 50 per cent worth of shorts of your amount at ₹525 and the remaining one-fourth when the price touches ₹550. Place initial stop-loss at ₹590.
When the price declines below ₹440, tighten the stop-loss to ₹475. On a fall below ₹400, liquidate three-fourths of your total shorts and tighten the stop-loss to ₹435. Exit the remaining at ₹380.