MCX-Aluminium continues to look weak

Akhil Nallamuthu, BL Research Bureau | Updated on November 04, 2019

Bears seem to be pausing in MCX-Aluminium, with the November futures contract of the metal inching up since last week. Though the overall trend still remains bearish, there are a few signs that indicate that bears are losing steam. The daily relative strength index did not follow the price in forming lower low and the moving average convergence divergence indicator is showing a bullish divergence. However, for a sustainable recovery for the commodity, the contract price must breach the resistance band between ₹135 and ₹136. A close above that level can be taken as a confirmation and that would also mean that the medium-term trend will turn bullish; until then the outlook will be biased towards downside.

So if rallies get sold, resulting in further weakness, the contract could retest the previous low of ₹130.5. A break below that level will intensify the sell-off taking the price to ₹125. On the other hand, if the contract breaches the resistance band, it would attract fresh buying interest and hit ₹138.4. The immediate resistance beyond that level is at ₹140.

On the global front, the three-month forward contract of Aluminium on the LME has rallied past an important level at $1,750. The contract has also moved beyond 50-DMA giving it a bullish bias. Hence, the contract will most likely appreciate to $1,800 and the subsequent resistance is at $1,825. But if price starts declining by reacting to the resistance at $1,800, it might depreciate to $1,750.

Trading strategy

The commodity price in LME has shot up, but price in MCX is unable to emulate the trend and weakening dollarcould be the primary reason for this. Since the overall trend for the commodity is still bearish and price in dollar terms is nearing a resistance, traders can short MCX-Aluminium November futures contract on rallies with a stop-loss at ₹137.

Published on November 05, 2019

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