Technical Analysis

MCX-Natural Gas shows bearish bias

Akhil Nallamuthu BL Research Bureau | Updated on May 26, 2020

Natural gas emits between 45% and 55% fewer greenhouse gas emissions and less than one-tenth of the air pollutants of coal when used to generate electricity.   -  Reuters

The June futures contract of Natural Gas on the Multi Commodity Exchange (MCX), after registering a high of ₹179.1 during the first week of the current month, started to decline. The contract then took support at ₹140 and rallied to ₹154. Unable to appreciate above that level, it seemed to have resumed the downtrend and it is currently retesting the support at ₹140.

The price remains below the 21-day moving average (DMA), giving it a weak outlook. Corroborating the bearish bias, the Moving Average Convergence Divergence (MACD) indicator on the daily chart is in a downward trajectory and stays in the negative region. Also, the Relative Strength Index (RSI) is below the midpoint level of 50.

On the back of the prevailing bearish trend, the contract is likely to decline further. While ₹140 can act as the immediate support, the subsequent support is at ₹130. A break below that level can drag the contract to ₹125. On the contrary, if the contract takes support at ₹140 and moves up, ₹154 can act as a hurdle where the 21-DMA and the 38.2 per cent Fibonacci retracement level coincides. A breakout of that level can lift the contract to ₹160.

On the global front, the generic first contract of Natural Gas on the Nymex New York Mercantile Exchange (Nymex) has been consolidating in a broad range for the past two months. It has been oscillating between $1.5 and $2 and as long as the price remains below $2, bearish bias likely to persist. A drop in price can weigh on the contract on the MCX.

Trading strategy

Even while the price of Natural Gas has been falling on the MCX, globally the price seems to be moving in a broad range since the past two months. Traders can initiate fresh short positions if the contract breaches the support at ₹140. Place stop-loss at ₹150.

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

Published on May 26, 2020

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