The price pattern of Natural Gas since 19th Apr, 2011 is taking shape of a bearish head and shoulder pattern on the daily charts. The formation of this price pattern is a sign of distribution and signals that the future price action of an index/stock/commodity will trade with a negative bias.
The neckline support for the said pattern is placed at the Rs 184.70 levels. A sustained break below the Rs 193.80 levels will see the prices of Natural gas heading down towards the neckline support level of Rs 184.70 levels.
Another key observation to be made is that the recent rally towards the Rs 204.50 levels was met by a negative divergence by the RSI indicator, as a result of which the prices did not sustain at higher levels and thus slipped below its near term moving averages.
Once the price gives a sustained breakdown below the neckline support levels it can correct to levels of Rs 176.40 / Rs 169.
We recommend traders to sell 50% on a sustained break below the Rs 193.80 levels and again of rallies to Rs 198--Rs 199 levels with a stop loss placed above Rs 202.30 levels for the initial downside target of Rs 184.70 levels, followed by the implied targets of Rs 176.40 / Rs 169 levels on a sustained breakdown below the neckline support level.
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