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The mustard seed futures contract traded on the National Commodity and Derivatives Exchange Ltd (NCDEX) has surged over 8 per cent over the last three weeks. Concerns on the damage caused by the recent unseasonal rainfall on the produce, has led to the price rise. The contract is poised above its important support levels and is likely to extend its rally in the coming days. This offers a good opportunity for traders to initiate fresh long position in the contract.
Short-term view: The short-term trend is up. The sharp 26 per cent fall from the January peak of ₹4,397 halted at a low of ₹3,252 in February. Since then the contract has formed a strong base by consolidating between a sideways range of ₹3,300 and ₹3,450, before surging higher. The 200-day moving average support is at ₹3,643 and series of other moving average supports are poised in the ₹3,600-₹3,560 zone. Intermediate declines to these support levels is likely to attract fresh buyers, and the downside could be limited to ₹3,560.
Short-term traders can go long at current levels. A rally to ₹3,825 looks likely in the coming days. Stop-loss can be placed at ₹3,535 for the target of ₹3,815. Dips to ₹3,600 and ₹3,560 can be used to accumulate long positions.
The outlook will turn negative only if the contract records a strong break and close below ₹3,560. Such a break can drag the contract lower to ₹3,500 initially. It will also increase the likelihood of the contract to revisit ₹3,450 and ₹3,350 levels.
Medium-term view: The medium-term outlook is also positive. The reversal from the February low of ₹3,252 has happened from an important long-term trend line support. Key resistance to watch is ₹3,825 - the 50 per cent Fibonacci retracement level. A strong break above this hurdle can take the contract higher to ₹4,000 levels. On the other hand, inability to breach ₹3,825 can keep the contract moving within a broad sideways range of ₹3,400 and ₹3,800 in the medium-term.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.
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