The downtrend in the natural gas futures on the Multi Commodity Exchange (MCX), that began in early November 2020 from about ₹256, resulted in considerable depreciation on price over the subsequent months. The January futures contract registered a low of ₹167.4, thereby losing nearly 35 per cent from its November high.
However, in the past one month, even though the contract continued to form lower lows and lower highs, the downtrend seemed to be losing momentum gradually. This can be observed in the momentum indicators like the relative strength index (RSI) and the moving average convergence divergence (MACD) indicators on the daily chart.
As and when the contract dipped, unlike the price, these indicators failed to make lower lows i.e., both the indicators started exhibiting bullish divergence – an indication of a potential reversal in the trend upwards. Moreover, RSI has entered the positive territory and MACD is on the verge of doing the same.
Against this backdrop, the contract moved past the crucial level of ₹200 on Tuesday. Since 38.2 per cent Fibonacci retracement of the prior downtrend coincide at this level, the breakout attains more significance. Also, the 21-day moving average has been acting as a good buffer over the past week.
The implication of the above factors is that the trend, at least in the short-term, is turning bullish. Hence, traders can buy MCX-Natural gas futures on declines with stop-loss at ₹190. Potential targets can be ₹220 and ₹235.
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