Prices of natural gas fell and as a result, the futures contract on the MCX (Multi Commodity Exchange) declined to mark a two-month low of ₹476.5 towards the end of last week. It has recovered from that level and the contract closed at ₹517.1 on Wednesday. Although the short-term bias remains bearish, the natural gas futures might see a rally to ₹570 from where it could resume a downtrend.
If it falls as we expect, the price is likely to touch ₹470. A breach of this level can pull the contract down to ₹435. Supporting the bearish inclination, the 21-day moving average (DMA) has slipped below the 50-DMA. Thus, the probability of the contract falling to ₹435 is high.
On the other hand, if the contract breaks out of ₹570, the up move can extend to the price band of ₹600-610 where the 21- and 50-DMA coincide.
But since we expect the contract to turn downward after reaching ₹570, we recommend traders to stay away now and initiate fresh short positions when the price rises to ₹570. Add more shorts if the contract extends the ascent to ₹590 and place initial stop-loss at ₹610.
When price falls below ₹500, alter the stop-loss to ₹550. Exit half of the total shorts that you hold when price touches ₹470. For the remaining positions, tighten the stop-loss to ₹510 and liquidate when futures drop to ₹435.