Natural gas futures (December contract) on the Multi Commodity Exchange (MCX) began falling after facing resistance at ₹320 in early November. It has been declining steadily, and on Monday it slipped below the support at ₹200. It closed at ₹196 on Tuesday.
This has opened the door for a further fall in prices. The nearest support is at ₹178. A breach of this level can drag natural gas futures to ₹165. But if there is a recovery, the contract can face hurdles at ₹205 and ₹215.
Although the trend is bearish, the fall has been sharp and, as the price moves southwards, the possibility of bears taking profits will increase. This can lead to a potential corrective rally. That said, for the trend to turn bullish, the contract should surpass ₹235.
Trade strategy
Short natural gas futures now at around ₹195 and add shorts when the price rises to ₹205. Place stop-loss at ₹215. Book profits at ₹180.
But note that this is a high-risk trade because, as mentioned above, the contract might see a corrective rally. Hence, risk-averse traders can stay away.