Bulls seemed to gain traction when the January contract of crude oil on the Multi Commodity Exchange (MCX) made a fresh break out of ₹3,500 before a week. It even went past ₹3,600-mark to register a fresh high of ₹3,639 last week.
Until the breakout occured, it was largely oscillating between ₹3,300 and ₹3,500 for about two weeks. Prior to that, the contract had rallied for about a month from its low of ₹2,823. From these deveopments, the contract looked to have established next leg of uptrend. However, on Monday, it witnessed substantial sell-off where it fell back below ₹3,500.
The daily relative strength index, though staying in the positive territory, is now showing a sharp downtick. Also, the moving average convergence divergence indicator on the daily chart is on the verge of turning its trajectory downward. Considering these factors, the contract can be bearish until it remains below ₹3,500.
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On the downside, support levels are at ₹3,400, ₹3,340 and then at ₹3,300. Notably, if the support at ₹3,300 is breached, the outlook can turn negative. But if the bulls regain traction and the contract appreciates above ₹3,500, it can possibly retest the prior high of ₹3,639. Above that level, it can rally to ₹3,700.
Taking the above factors into account along with risk-reward ratio, traders can stay on the fence now and either initiate fresh longs with stop-loss at ₹3,300 if price drops to ₹3,400 or go long above ₹3,500 with stop-loss at ₹3,400.
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