Natural gas futures on the Multi Commodity Exchange (MCX) fell beyond the support at ₹170 early this month, extending the downtrend. Notably, the price has been on the fall since mid-June.
However, after slipping below the support at ₹170, the natural gas futures recovered quickly, reclaiming the ₹170-mark. This is giving some hope for the bulls. However, currently trading at ₹187, the contract faces a resistance at ₹195.
A breakout of ₹195 can confirm the reversal of the trend. While the long-term trend may remain down, a breach of ₹195 can turn the short-term outlook positive. In this case, natural gas futures can rally to ₹220, a resistance. At this level, the 50 per cent Fibonacci retracement level coincides at this barrier.
However, if the contract resumes the downswing and falls below ₹170 again, it can drop deeper to ₹135.
Trading strategy
Stay on the sidelines for now. Buy natural gas futures on a breakout of ₹195. Place initial stop-loss at ₹185. When the contract rallies to ₹210, tighten the stop-loss to ₹190. Book profits at ₹220.