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Natural gas futures on the Multi Commodity Exchange (MCX) has been on a downtrend since mid-June. It started the descent after facing resistance at ₹275.
However, the price action since early August shows that the bears have been losing traction. While the recovery has been capped at the resistance level of ₹204, the decline also was stopped as ₹170 provided support.
As it stands, natural gas futures appear rudderless. It should breach either ₹170 or ₹204 to establish the next leg of the trend.
If a breakout of ₹204 occurs, natural gas futures can rally to ₹234. The 61.8 per cent Fibonacci retracement of the prior downswing coincides at ₹234, making it a strong hurdle.
On the other hand, if the contract slips below ₹170, it can drop to ₹160, a good support. A breach of this can intensify the sell-off, possibly leading to a fall to ₹135.
Trade strategy
As mentioned earlier, as long as September futures of natural gas trade within ₹170 and ₹204, the next leg of the trend will be uncertain. Therefore, traders can refrain from taking fresh trades at the current levels.
New positions can be initiated along the direction of the break of ₹170-204 price band.
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