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After rallying past the resistance at ₹220 in mid-January, the aluminium February futures on the Multi Commodity Exchange (MCX) extended the upside to mark a high of ₹228.25. However, the bulls lost the momentum as the price level of ₹228 acted as a resistance, preventing a rally beyond this level.
The contract has now moderated to the resistance-turned-support level of ₹220. A drop below this level is less likely. The candlesticks of the past two days (refer daily chart) show that there is good buying in the ₹219-₹221 price band as the candles have formed long lower wicks. Therefore, we might see a rebound off this level soon.
If the rally resumes as we expect, the price might rise towards the price band of ₹250-256, a resistance band. Subsequent resistance is at ₹272.
On the other hand, if the contract slips below ₹220, it might extend the decline towards the price band of ₹205-210.
Trading strategy
In mid-January, we recommended long positions on aluminum futures at ₹220 with initial stop-loss at ₹210. Retain this trade. Traders looking for fresh opportunities can buy now.
When the contract moves above ₹232, shift the stop-loss to ₹220. Further, tighten the stop-loss to ₹232 when the price rallies above ₹240. Exit the longs at ₹250.
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