Natural gas futures on the Multi Commodity Exchange (MCX) have been on a downtrend since early October. The November expiry contract, currently trading at ₹232 per mmBtu, started declining after facing a resistance at ₹285.

Last week, the contract made a lower low by slipping below a support at ₹234, which is now a resistance. Nevertheless, there has not been much of a fall as the price action indicates that natural gas futures have settled at ₹225-230 range.

However, this does not mean a bullish reversal. The November natural gas futures should break out of the barrier at ₹252 to turn the outlook positive. In such a case, it can rally back to ₹285.

But if the contract falls from the current level of ₹232 and drops below ₹225, the downtrend can extend to ₹200, a considerable base. A breach of this can take the contract to ₹186. Broadly, as it stands, the next leg of trend depends on which among ₹225 and ₹252 the contract breaches first.

Trade strategy

Stay out for now. Short natural gas futures (November) if it falls below ₹225. Target and stop-loss can be ₹200 and ₹235 respectively.

On the other hand, if the contract rallies from here and surpasses ₹252, initiate fresh longs with a stop-loss at ₹235. When the contract rises to ₹275, tighten the stop-loss to ₹265. Book profits at ₹285.

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