Downtrend ends in MCX Natural gas; contract gears up for a corrective rally


Downtrend ends in MCX Natural gas; contract gears up for a corrective rally

Natural gas prices have reversed higher and have been trending up over the last couple of weeks.

The Natural Gas futures contract on the Multi Commodity Exchange of India (MCX) touched a low of ₹181.8 per mmBtu on February 15 and has reversed higher from there. It is currently trading at ₹202 per mmBtu.

The recent up-move is an early sign that the downtrend that has in been in place since December 2018 could have come to an end.

Positive outlook

Natural gas prices have been volatile since the second half of 2018. The MCX-Natural Gas futures contract had surged to a multi-year high of ₹358.7 in November 2018. But, the contract reversed sharply lower giving back all the gains made in 2018 in a short span of two months. After touching a low of ₹181.8 earlier this month, the contract has reversed.

The recent bounce-back is technically significant as it has happened from the key 200-week moving average as well as a long-term trend-line support, both poised at around ₹189. This signals that a trend reversal could be on the cards. But a confirmation for the same needs some time.

However, since the contract has fallen sharply in a very short span of time, a corrective rally is likely in the coming weeks.

A cluster of supports is poised between ₹195 and ₹190. Intermediate dips to this support zone can find fresh buyers coming into the market.

As long as the contract trades above the ₹195-₹190 support zone, a corrective rally to ₹220 is likely in the coming weeks. A strong break above ₹220 will then pave way for the next target of ₹240 and ₹245.

Trading strategy

Traders with a big appetite for risk can go long at current levels and also accumulate on dips at ₹195.

A stop-loss can be placed at ₹188 for the target of ₹235. Revise the stop-loss higher to ₹210 as soon as the contract moves up to ₹215.

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