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Lead prices have been tumbling over the last six months, bogged down by slowing global growth and weak Chinese demand.
The fall in the metal price intensified in December when the HSBC/Markit flash manufacturing purchasing managers’ index (PMI) fell to a seven-month low of 49.5 from 50 a month earlier.
Lead futures traded on the Multi Commodity Exchange (MCX) have tumbled over 4 per cent this month.
The downtrend in the contract remains intact. There is still room left for it to extend the fall in the coming days. This leaves a good opportunity for the short-term traders to take short positions in this contract.
Short-term view: The short-term trend is down. After consolidating between ₹110 and ₹115 per kg in the first two weeks of February, the contract has witnessed a downside breakout of this range last week.
Immediate resistance is at ₹110 and then key short-term resistance is at ₹113. As long as it trades below these resistances, a fall to ₹107 and ₹105 looks likely.
Short-term traders can initiate fresh short position at current levels.
Stop-loss can be kept at ₹113.5 for the target of ₹105. Intermediate rallies to ₹112, if seen, can be considered to accumulate more short positions.
The downside pressure will ease only on a strong break above ₹113. The next targets on such a break will be ₹115 and ₹119.
Medium-term view: The medium-term trend is also down. The contract has decisively broken its 200-week moving average at ₹119 in December last year.
Additionally, there is a head and shoulder pattern visible on the charts and as a continuation pattern as well, which is a rare occurrence.
In general, the head and shoulder is more known as a reversal pattern. The neckline resistance of this pattern is poised at ₹121. So the contract is expected to remain under pressure as long as it trades below these resistances at ₹119 and ₹121.
A fall to ₹102 – the target level of the head and shoulder pattern looks likely in the medium-term.
Traders with a medium-term perspective can go short with the same stop-loss at ₹113 and hold the short position for a wider profit level of ₹103.
Note: Price as of 6pm on Tuesday. The recommendations are based on technical analysis. There is a risk of loss in trading.
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