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The continuous contract of aluminium on the Multi Commodity Exchange (MCX) saw its last leg of rally between February and May wherein the price rose from about ₹162 to a fresh high of ₹206. The contract faced stiff resistance, struggled to move up and eventually reversed.
What followed was a sharp correction in price and consequently, the futures touched ₹186 a month ago from where the bulls tried to reclaim control. However, they could not succeed upwards of ₹197.Over the last four weeks, the contract has been moving sideways. It has been oscillating between ₹186 and ₹197. Due to this, indicators like the relative strength index and the moving average convergence divergence on the daily chart are flat, lacking any trend.
Nevertheless, going by the recent price action, the contract will most likely move up from the current level as it is closer to the range bottom. On the other hand, looking at the outstanding open interest (OI) of the nearest expiry (June series) during the decline since last Monday, the number has dropped from 2,427 to 1,449 (as on Tuesday). That is, there is a drop in OI when the price fell, indicating the possibility of short covering, which might set the tone for an up-move. Hence, traders can buy aluminium futures with stop-loss at ₹185.Targets are ₹197 and ₹200.
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