Medium-term uptrend in guarseed

Guarseed is among the trader's favourites on Indian commodity exchanges. We consider the guarseed generic futures price traded on the National Commodity and Derivatives Exchange for this technical analysis. The contract size is 10 tonnes and the tick value is Rs 100. The guar generic futures closed at Rs 3,329 a quintal on Friday.

India is the major produce of guar, besides Pakistan and Sudan. Rajasthan and Haryana are the main producing States. The seed is sown between June and August, while harvesting is done between September and November. Guar gum is the primary product produced from roughly 90 per cent of guar and almost 75 per cent of guar gum is exported. Guar gum is used in drilling and crude oil extraction.

Guarseed futures were in a sideways consolidation phase in the range of Rs 1,400 and Rs 2,000 between September 2004 and January 2009. The contract found support at its significant long-term base at Rs 1,400 that is the lowest boundary of the sideway ranges, in January 2009. Since then, guarseed futures have been on a long-term uptrend. However, one leg of this uptrend ended in December 2009, registering a high of Rs 2,872. Subsequently, the contract witnessed a corrective downtrend which retraced 61.8 per cent Fibonacci retracement level of its prior upward move and found support around Rs 2,000 in September 2010. This level is also an important long-term support level. Subsequently, it resumed its major uptrend and recorded an all-time high at Rs 3,351 on May 25.

As long as the futures trade above Rs 2,350, the long-term trend remains up. A strong decline below this level will negate the uptrend and pull futures down to 2,000 levels in the long-term. Important support around Rs 2,825 will provide support in declines. The long-term targets for guar futures on a conclusive move beyond Rs 3,400 are Rs 3,700 and Rs 4,000.

Medium-term trend

The medium-term trend for guar seed is upwards since its September 2010 low of Rs 1,928 levels. Currently, the contract is loosing its bullish momentum as we observe that the daily relative strength index and moving average convergence divergence indicators are displaying negative divergence, signalling the possibility of a trend reversal in the near future. A downward reversal from between 3,300 and 3,400 levels can pull guarseed futures lower to its immediate support at Rs 3,000 in the months ahead. The next key support is at Rs 2,800. The trend-deciding level for guarseed futures is in the band of Rs 2,600 and Rs 2,640. An emphatic fall below this band will mar the uptrend and drag the contract down to Rs 2,350 or Rs 2,200. However, if the support at Rs 3,000 holds, futures can consolidate sideways in the range of Rs 3,000 to Rs 3,400. A strong move above Rs 3,400 can lift futures higher to Rs 3,650. Short-term significant support and resistance are at Rs 3,200 and Rs 3,400 respectively.

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