Technical Analysis

Natural Gas price could soften further

Akhil Nallamuthu BL Research Bureau | Updated on January 07, 2020 Published on January 07, 2020

Representative image

The spot price of Natural Gas on the Multi Commodity Exchange broke below ₹156, a key level, last week. Thus, the overall bearish trend seems to be intact. But the 52-week low level at ₹144.6 can act as a support and prevent further depreciation.

Likewise, the January futures contract of Natural Gas on the MCX, which has been in a downtrend since November last year, breached the support at ₹156.4 last week. Also, retaining the short-term bearish outlook, the contract remains below the 21-day moving average.

Noticeably, the daily relative strength index and the moving average convergence divergence indicator on the daily chart is flat confirming a lack of trend. But RSI below the midpoint level of 50 does not bode well for the futures contract. If the contract declines from current levels on the back of a prevailing bear trend, the nearest support is at ₹147. Support below that level is at ₹140. On the other hand, if the contract starts to recover, it will face resistances at ₹156.4 and ₹167.8.

On the global front, the price pattern of the generic first contract of Natural Gas on the New York Mercantile Exchange broke below the support at $2.2 and is potentially heading towards the critical support at $2. While the contract might witness short-covering at that price level, a break below it could mean a fresh 52-week low and the downtrend could deepen further.

Trading strategy

Though the Natural Gas is in a bear trend, the spot price on the MCX and the contract price on the LME is hovering around a considerable base, where the downtrend might be arrested. Hence, from trading perspective, it is recommended to initiate fresh short positions with a dynamic stop-loss. Place initial stop-loss at ₹160 and shift it lower with a gap of 1 ATR (average true range) as price descends to new lows.

Published on January 07, 2020
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