Castorseed futures contract traded on the National Commodity and Derivatives Exchange (NCDEX) have gained some 2 per cent on Tuesday. The price action on the charts over the last two months suggests that the contract could be forming a base by moving sideways and is gearing up for a sharp reversal. Prior to this sideways consolidation move, the contract had tumbled about 25 per cent in January and February. A sudden and a surprise surge in supply when the price of the commodity was ruling higher at about ₹5,300/quintal levels triggered the decline. However, after recording a low of ₹3,529 in early March, the contract has been consolidating sideways between ₹3,500 and ₹3,850. Increase in spot market demand as well as the industrial and export demand in recent times has helped the price to move up in the past two weeks.

Short-term view: The recent reversal from the high of ₹3,873 recorded on April 24 found support at ₹3,670 – the 50-day moving average level. The subsequent price rise on Tuesday signals the beginning of a fresh leg of upmove for the contract. Resistance is at ₹3,815. A strong break and close above this hurdle will confirm the break out of the sideways consolidation movement that has been in place since March. Such a break will be bullish and can take the contract higher to ₹3,950 – the 200-week moving average resistance level. A strong break above ₹3,950 will take the contract to the next target of ₹4,050.

Traders can go long. Stop-loss can be placed at ₹3,635 for the target of ₹3,950.

The bullish outlook will get negated if the contract records a decisive break and close below ₹3,680 – the 21-day moving average support level. Such a break can drag the contract lower to ₹3,600 and ₹3,550 in the short term.

Medium-term view: The overall downtrend that started this year still remains intact. However, this downtrend could be making a bottom. As mentioned above, the price action on the chart since March has been suggesting a formation of a base. Key support is at ₹3,500. Also there is a long-term trend line support poised at ₹3,350, but an immediate break of this looks unlikely. So the downside is expected to be limited even if the contract declines below ₹3,500 in the coming days. Having said this, a reversal either from current levels or after testing ₹3,350 could be a bullish signal for the contract. Such a reversal will have the potential to take it higher to ₹4,150 in the medium-term.

However, the bullish outlook will get negated if the contract declines below ₹3,350. In such a scenario, the contract can extend its fall to ₹3,235 and ₹3,100.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

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