The price of natural gas witnessed a sharp fall last week. Thus, the January futures of natural gas on the Multi Commodity Exchange (MCX) slipped below the support at ₹450. While it marked a low of ₹403.4 last Friday, it has now recovered to ₹414.
Notably, there was a short build last week and the roll-over seems to be strong, indicating that the contract retains bearish bias.
Nevertheless, the price band of ₹400-410 is quite a strong support band and until these holds, bulls have a chance to perform a recovery. In the least case, the contract might see a corrective rally if not a bullish trend reversal i.e., it could move up to ₹450 or even ₹490 in the near term.
On the other hand, in case the contract falls below ₹400, it will most likely see a swift fall to ₹360 — its nearest support. Subsequent support is at ₹330.
Trade strategy
Although the bearishness has not faded completely, traders can risk going long at the current level on the back of the support at ₹400. That is, buy MCX natural gas futures now at around ₹414 with a stop-loss at ₹395.
When the contract surpasses ₹450, tighten the stop-loss to ₹415. Similarly, when the price touches ₹470, move the stop-loss further up to ₹450. Exit the longs at ₹490.
On the other hand, if the contract decisively breaches the support at ₹400 and the stop-loss of the above-mentioned longs is triggered, consider initiating fresh shorts. Stop-loss and target levels for these shorts can be ₹415 and ₹360, respectively.