Commodity Calls

Risk going long on natural gas futures

Akhil Nallamuthu | Updated on October 20, 2021

The selected agency shall design, structure and implement the overall process of e-auction for the discovery of market price for natural gas produced in India   -  Getty Images/iStockphoto

Place stop loss at ₹345

BL Research Bureau

Natural gas price, which has been declining over the past couple of weeks, is starting to show signs that the sell-off might be coming to an end. It is likely to form a base and could see a recovery from here.

The continuous contract of natural as on the Multi Commodity Exchange (MCX) saw it last leg of rally between August and early October when its price rose from about ₹280 and marked a fresh high of ₹485. But then, the contract reversed downwards and is now hovering around ₹380 after making one-month low of ₹363 on Tuesday.

Going ahead, the chances of a recovery from here look reasonable. That is, the contract has a support at ₹354 and the 50-day moving average lies at ₹368, essentially forming a support band of ₹354-368. Also, the 61.8 per cent Fibonacci retracement level of the prior rally lies at ₹362 i.e., within the above-mentioned price band. Thus, natural as futures could take this support and might gradually start to push upwards.

Considering the above reasons, one can risk taking fresh longs at current levels. That is, buy at current levels of ₹380 and go long again if the price moderates to ₹360; place initial stop-loss at ₹345. Consider booking partial profits at ₹410 and revise the stop-loss upwards to ₹380 and look to exit the remaining positions at ₹430.

Stick to the stop-loss strictly because a breach of ₹350 can invite fresh sellers, resulting in sharp decline. Supports below ₹350 are at ₹330 and ₹318.

Published on October 20, 2021

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