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The guarseed futures contract traded on the National Commodity and Derivatives Exchange (NCDEX) fell 2 per cent last week to close at ₹3,636 a quintal. The contract had encountered a key resistance at ₹3,750 before it started to decline.
Further, extending the downward momentum, the contract fell another 1.7 per cent to ₹3,576 on Monday, breaching its 50-day moving average as well as a key immediate support at ₹3,620. On Tuesday, the contract was marginally up by 0.6 per cent and was trading at ₹3,569 levels. The contract appears to be testing the key support at around ₹3,620 levels. Since encountering a significant resistance at ₹3,980 in late July, the contract has been on a short- to medium-term downtrend (forming lower troughs and peaks).
After retracing up to the 68.2 per cent Fibonacci retracement level of its prior uptrend, the contract found support at around ₹3,380 in late August. Thereafter, it witnessed a corrective up move to test the key resistance level of ₹3,750.
The relative strength index in the daily and weekly chart are featuring in the neutral region showing signs of weakness. Further, the weekly price rate of change (ROC) indicator has entered the negative territory implying selling interest and the daily ROC is on the brink of entering the negative territory. The daily volume has been decreasing over the past four trading sessions.
As the contract’s downtrend is getting strengthened, it can extend the fall and test the key support at ₹3,380 in the short term. Traders with a short-term perspective can make use of the corrective up move to initiate fresh short positions on the contract at around ₹3,650 while maintaining a stop-loss at ₹3,720 levels.
An emphatic downward breakthrough of ₹3,380 can pull the contract down to the next support level at ₹3,200 in the medium term. Conversely, the contract has a key immediate resistance at ₹3,750. An upward breach of this level can take the contract higher to test the vital resistance at ₹3,900 in the medium-term. Only a conclusive break through of ₹3,900 will alter the bearish outlook and take the contract higher to ₹4,000 levels.
(Note: The recommendations are based on technical analysis. There is a risk of loss in trading.)
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