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Silver futures contract traded on the Multi Commodity Exchange witnessed a sharp rally last week in line with the view mentioned in this column last week. However, the contract has given back most of its gains and has reversed lower again after recording a high of ₹46,400/kg on Friday. This reversal is very significant because ₹46,400 level is a key channel resistance level. The MCX-silver contract has been trading in a bear channel since November 2013. So the pull-back seen on Friday keeps the bear channel pattern intact and retains the danger of the decline extending in the coming days.
Key support for the contract is at ₹44,850. This support level is very crucial to determine the next leg of move for the contract.
A break below this level will increase the bearish sentiment and drag the contract lower to ₹44,000. On the other hand, if the contract manages to sustain above ₹44,850 and reverses higher from this support, then a rise to revisit ₹46,000 levels is possible in the short-term.
Two scenarios can be considered for trading purpose.
Scenario 1: If the contract falls below ₹44,850, go short at ₹44,750 with a stop-loss at ₹44,950 for the target of ₹44,400.
Scenario 2: If the contract reverses higher from ₹44,850 wait for it to breach the psychological level of ₹45,000. Initiate fresh long position at ₹45,100 with a stop-loss at ₹44,700 for the target of ₹45,800.
(Note: The recommendations are based on technical analysis. There is a risk of loss in trading.)
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