Natural gas futures (continuous contract) on the MCX (Multi Commodity Exchange) have largely moved in a sideways trend since mid-August. Although it now hovers around the important level of ₹700, the contract is showing bearish signs, which indicates that a bearish trend reversal is on the cards.
The contract has formed an evening star pattern on the weekly chart, which generally hints at a downward reversal in trend. The weekly RSI shows a bearish divergence, too. Therefore, we believe that natural gas futures is up for a trend reversal, which pulls the price down to at least ₹600. Even if the contract moves up from here, it is likely to be capped at ₹725.
Considering the above factors, one can opt for a sell trade. That is, short MCX natural gas at the current level of ₹700 and add more shorts when the price rallies to ₹725. Place an initial stop-loss at ₹775.
When the contract slips below ₹650, tighten the stop-loss to ₹720. Exit the shorts at ₹610, because the price band of ₹600-610 is a good support against which the contract could see a bounce.