Aluminium futures on the Multi Commodity Exchange (MCX) rallied over the past week, in line with expectations. However, while we expected the contract to move up to ₹212 before a correction, it faced a minor hurdle at ₹210 and has slightly declined to ₹209.
The prevailing price action hints at a possible correction towards ₹207.50-208 price region before the aluminium futures surpass ₹210. That said, we expect the contract to eventually resume the rally and appreciate to ₹212 or even to ₹216 in the next few weeks.
In case the contract falls below ₹207.50, the downswing could extend to ₹205, a support. Below this level, there is a support band between ₹200 and ₹202. A fall below ₹200 is less likely. But note that if ₹200 is breached, it can open the door for a fresh leg of downtrend. This can drag the contract to ₹188 quickly.
Yet, broadly, the aluminium futures contract is more likely to see an upward move to ₹212 or ₹216 after a possible softening in price to ₹207.50-208 range.
Trade strategy
We suggested taking long position at ₹206 last week; stop-loss at ₹196. Taking the above factors into account, we recommend revising the stop-loss from ₹196 to ₹207.
If the contract recovers and hits ₹212, exit half of the buys and then tighten the stop-loss to ₹209. Liquidate the remaining at ₹216.