Technical Analysis

MCX-Natural Gas likely to weaken

BL Research Bureau | Updated on May 18, 2020

The May futures contract of natural gas on the Multi Commodity Exchange (MCX), which has been oscillating in the band between ₹130 and ₹160 for about three months, breached the lower boundary of the range last week. Last Friday, the contract closed at ₹126 after registering an intra-week low of ₹121.7. The price has been moving up a little since then and is currently trading at ₹131, which could be a mere retracement before resumption of the downtrend.

The price has fallen below both the 21- and 50-day moving averages (DMAs) of ₹143. Adding fuel to the bearishness is the descending trend in the Relative Strength Index (RSI) which has fallen below the midpoint level of 50. Moreover, the Moving Average Convergence Divergence (MACD) indicator on the daily chart has entered the negative zone.

On the back of the prevailing bearish trend, the contract is likely to decline further towards the prior low at ₹121.7, which can act as a good support. Below that level, it can fall to ₹110. But if the contract manages to reverse the trend, ₹136 can be a hurdle on the upside. Above that level, it could rally to ₹143, which coincides with the 21- and 50-DMAs.

On the global front, the generic first contract of natural gas on the New York Mercantile Exchange (Nymex) has been weakening since the beginning of the month. The price has fallen below the important level of $1.8; the price action hints at more decline. Support levels can be spotted at $1.65 and $1.5. Price decline here can weigh on the MCX contract price too.

Trading strategy

The price of natural gas has been falling, where the contracts on the MCX and LME have slipped below their respective supports. Given this scenario, traders can take a bearish view and short the MCX-Natural Gas contract on rallies with stop-loss at ₹143.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

Published on May 18, 2020

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