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Since last September, the continuous futures of natural gas on the Multi Commodity Exchange (MCX) have been on a decline. The latest leg of downtrend began in December from about ₹515. Bears went on a rampage as the contract dropped below key supports at ₹280 and ₹250 over the past couple of weeks.
As things stand, there are no signs of a recovery. Even if there is a rally, it is likely to be a corrective one which is likely to be capped at ₹280. The outlook will turn bullish only if the contract decisively breach the hurdle at ₹280.
On the other hand, if the decline extends, the probability of which is high, can depreciate towards the nearest support at ₹180. The contract might bounce off this support.
Trade strategy
As the overall trend is bearish with a chances of corrective rally, we recommend initiating trades in two legs. That is, go short at the current level of ₹227. Add more shorts when the contract rallies to ₹270. Place stop-loss at ₹290.
When the contract declines below ₹200, bring the stop-loss down to ₹250. Book profits at ₹180.
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