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After breaking out of a crucial resistance at ₹255 in early February, the continuous contract of aluminium on the Multi Commodity Exchange (MCX) rallied sharply to hit a fresh high of ₹325.4 on Monday. But then, the contract fell sharply and is currently trading around ₹270, largely due to profit booking. The cumulative open interest (OI) of aluminium futures dropped to 2,682 contracts compared to 4,565 contracts by the end of last week.
Notably, the price level of ₹265 is a considerable support. A break below this level can drag the contract to ₹255. A breach of this level is less likely as this is a significant support. Moreover, the major trend is bullish. Also, there is a rising trendline, which can act as a dynamic support.
Therefore, the contract can be expected to gain traction and move up either from current level ₹270 or could fall to ₹255 and then resume the upward movement. It is likely to rise to ₹310 in the short-term. A breach of this level can lift the contract to ₹325. However, if the support at ₹255 is invalidated, we might see a decline to ₹236, its nearest support.
Since the overall trend is up and the contract is trading above key supports, one can consider fresh longs. That is, buy at current level of ₹270 and add more longs if price drops to ₹255. Place initial stop-loss at ₹245. When the contract moves above ₹290, tighten the stop-loss to ₹270. Liquidate the longs at ₹310.
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