MCX-Aluminium may weaken further

MCX-Aluminium (₹131.3)

The price of aluminium weakened over the past week as the recovery could not extend beyond a critical resistance. The November futures contract of the metal declined from the resistance at ₹136; the 23.6 per cent Fibonacci retracement level of the bear trend coincides at that price, making the resistance significant. It is currently trading near its previous low of ₹130.5. The price has fallen back below the 21-day moving average and the moving average convergence divergence indicator is showing signs of weakness. However, unlike the contract price, the daily relative strength index has not declined to its prior low - an indication of reducing bear strength.

Backed by the overall bearish trend, if the contract breaks below the support at ₹130.5, the sell-off could intensify dragging the price to ₹127.8. Support below that level is at ₹125. On the other hand, if the contract appreciates taking support from the current level, a major hurdle lies at ₹136. A break of that level can turn the medium-term trend bullish which can lift the contract price to ₹143. There is a minor resistance though at ₹138.4.

On the global front too, the price of aluminium fell over the past week. The three-month rolling forward contract of aluminium slumped below the crucial support at $1,800 and it marked a low at $1,733 ($1,735 is a support).

A recovery is facing hindrance at $1,760. At that level, the 21-day moving average and the 50-day moving average coincides, increasing its significance. Resistance above $1,760 is at $1,785 whereas below $1,735 there is a support band between $1,700 and $1,710.

Trade strategy

The price of MCX-Aluminium futures witnessed a sell-off from the resistance at ₹136. Even though the contract is on a decline, it is currently trading near a considerable support at ₹130.5. Hence, traders are recommended to wait for a decisive break and initiate fresh short positions only below ₹130.5.