The chana futures contract traded on the National Commodity and Derivatives Exchange (NCDEX) has tumbled over 6 per cent in last two weeks. Prior to this fall, the contract had surged a whopping 34.5 per cent from ₹3,611/quintal on March 20 to record a high of ₹4,856 on June 1. Given that the contract had risen so sharply in a short span of time, the recent fall in last two weeks could be attributed to profit taking. The uptrend that was in place since March has got reversed now and there is room for the corrective fall to extend in the coming weeks as well. This offers a good opportunity for traders to initiate fresh short position in the contract.

Short-term view: The outlook is bearish. The contract has declined decisively below the 21-day moving average, currently at ₹4,650. Also, there is a head and shoulders reversal pattern visible on the daily chart. The neckline of this pattern is at ₹4,570 which can act as a key resistance level. Immediate support is at ₹4,365 – the 38.2 per cent Fibonacci retracement level. A break below this support can drag the contract lower to ₹4,260 – the target level of the head and shoulders pattern. Traders can go short. Stop-loss can be placed at ₹4,610 for the target of ₹4,280. Intermediate rallies to test the neckline resistance at ₹4,570 can be used to accumulate short positions. The outlook will turn bullish only if the contract records a decisive break and close above the 21-day moving average. Such a break will open doors for the contract to revisit ₹4,800 and ₹4,900 levels.

Medium-term view: The medium-term uptrend remains intact. The recent fall is just a corrective pull back move within the overall uptrend. Key medium-term supports are at ₹4,200 and ₹4,100. Though these supports can be tested in the coming weeks, the medium-term outlook will turn bearish only if the contract breaks below ₹4,100 decisively. Such a break can pull the contract lower to ₹4,000 and then to ₹3,900. On the other hand, a strong reversal from ₹4,100 will mean the beginning of a new leg of up move. This leg of move could have the potential to take the contract higher to fresh highs there after.

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