The resistance at ₹160 has held well for the aluminium futures contract on the Multi Commodity Exchange (MCX). The contract made a high of ₹161.55 a kg on Wednesday last week and fell over 5 per cent to ₹152.85 on Friday. It has bounced slightly from this low to currently trade at ₹155.
The sharp fall in the past week had dragged the contract well below the 21-day moving average support level of ₹156. This moving average was providing strong support for the contract and had been limiting the downside for more than two weeks. The strong fall below this support has turned the outlook bearish.
Traders who have taken long positions in the past week on dips at ₹156 and ₹154 can exit the trade at current levels.
The 21-day moving average may now serve as a strong resistance for the contract and can cap the upside in the coming days.
As long as the contract remains below this resistance, there is a strong likelihood of it falling to ₹150 or ₹148 in the coming days. A break below ₹148 will increase the possibility of the fall extending to ₹145 or ₹144.
The contract will get a breather only if it breaks above ₹156 decisively. Such a break will ease the downside pressure and take it higher to ₹161 levels again.
Trading strategy
Traders can go short at ₹156. Stop-loss can be placed at ₹159 for the target of ₹148. Revise the stop-loss lower to ₹154 as soon as the contract moves down to ₹153.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.
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