The price of natural gas saw a sharp rally over the past week. The December futures of natural gas on the Multi Commodity Exchange (MCX) rebounded from the support at ₹450 and is currently trading at around ₹560. But it is worth noting that the price action since early November shows that the contract has largely been within a range. That is, it is consolidating in the broad range of ₹470-625.

That means, although natural gas futures can rise further, the potential appears limited. For one, the range top, a barrier, is likely to hold; and two, there is a series of resistances from here at ₹585, ₹600 and ₹625.

We expect the contract to turn bearish after rallying to the price region of ₹600-625. Thereafter, it might decline towards the range bottom — namely, ₹470.

On the other hand, if the contract decisively breaches the resistance at ₹625, the short-term outlook will turn bullish, where we might see the rally extending towards ₹700.

Trade strategy

Stay on the fence for now and initiate fresh short positions when the contract touches ₹600. Add shorts when price moves up to ₹625. Place stop-loss at ₹660.

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When the contract falls below ₹575 after our shorts are triggered, move the stop-loss down to ₹625. Tighten it further to ₹550 when the contract slips below ₹500. Exit the shorts at ₹470.