Technical Analysis

Outlook turns bearish for MCX-Natural Gas

Akhil Nallamuthu BL Research Bureau | Updated on June 02, 2020 Published on June 02, 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), which has been in a downtrend since the beginning of May, was consolidating in the band between ₹140 and ₹154 for the past couple of weeks. But the contract breached the support at ₹140 and closed below it last Friday, opening the door for further decline. Also, the price now rules below the 21-day moving average (DMA), keeping the outlook bearish.

Substantiating the downward bias, the daily relative strength index (RSI) is showing a fresh downtick and hovers below the midpoint level of 50. Also, the moving average convergence divergence (MACD) indicator on the daily chart is in a downward trajectory and staying in the bearish region. As long as the price trades below ₹140, the contract can be bearish.

As the trend is downward and the price has slipped below the important base of ₹140, the contract is likely to descend further. It might find support at ₹125, but a break below that level can drag the price to ₹120. On the contrary, if the contract strengthens, ₹140 will be a significant hurdle. A breakout of that level can lift the contract towards the 50-DMA resistance at ₹148. Subsequent resistance is at ₹154.

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

Trading strategy

Since last week, the prices of natural gas contract on the MCX and the LME have been sliding. Notably, the MCX-natural gas contract has breached the support at ₹140, turning the outlook negative. Traders can short the contract on rallies with stop-loss at ₹150.

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

Published on June 02, 2020
This article is closed for comments.
Please Email the Editor