The continuous futures contract of cottonseed oilcake (COCUDAKL) on the National Commodity and Derivatives Exchange (NCDEX) has been moving northwards since the beginning of this year.
In February, it broke out of the important level of ₹2,000 and the rally continued and marked a fresh high of ₹3,200 in August. But the contract had started to show signs of weakness and even though it made a higher high in August, indicators like the relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart were displaying negative divergence.
In line with this, the futures made a U-turn last month and started to fall. It invalidated the rising trendline, a bearish indication and slipped below the key support at ₹2,800.
The price action is sending out bearish signal and further decline is highly likely. But one should take note of RSI and MACD, which is hovering near over-sold levels and there has not been any corrective rally over the course of fall. So, the contract could see a bounce from the current levels of ₹2,420-2,500 levels before extending the downward movement. Hence, traders can wait and initiate short on rallies i.e., around ₹2,500.
Place stop-loss at ₹2,600 – a key resistance where 50 per cent Fibonacci retracement level of previous rally coincides. On the downside, the contract is likely to drift towards ₹2,230, a support level. Subsequent support can be spotted at ₹2,170.