Natural gas futures on the Multi Commodity Exchange has seen a sharp rally over the past two weeks. The continuous contract closed at ₹275.9 last week. A decisive close above ₹250 on a weekly basis is a strong bullish indication.

However, the chart of October series shows that ₹285 is a considerable resistance. There is a chance that the contract might see a corrective decline on the back of this barrier. Such a move can drag the contract to ₹270 or ₹262, which are potential supports.

The 50 per cent Fibonacci retracement of the recent rally coincides at ₹262, making it a strong support. So, expect natural gas futures to resume the uptrend either from ₹270 or ₹262.

On the other hand, if the bulls manage to lift the contract above ₹285 without seeing a corrective decline as we mentioned above, it will open the room for a rally to ₹310 in the short-term and possibly to ₹400 over the medium-term.

Trade strategy

Stay away for now and we recommend considering the below two alternatives.

One, if the contract declines, split the longs into two legs and go long at ₹270 and ₹262. Place initial stop-loss at ₹250. When the contract rallies past ₹285 after the buy orders are triggered, alter the stop-loss to ₹270. Further, when the contract surpasses ₹300, tighten the stop-loss to ₹290. Exit at ₹310.

Two, if the contract breaks out of ₹285 from the current level, initiate longs with initial stop-loss at ₹270. Modify the stop-loss to ₹290 when the contract moves above ₹300. Book profits at ₹310.

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