The continuous futures of aluminium on the Multi Commodity Exchange (MCX), which has been on a downtrend since early March, found some relief after the contract started to chart sideways by taking support at ₹200. It was largely fluctuating between ₹205 and ₹215 in July and August.
A few weeks ago the contract slipped below the support at ₹205, hinting at a comeback by bears. It even declined below ₹200 and is currently hovering around ₹195.
The price action indicates that the fall is likely to extend, with the nearest supports at ₹186 and ₹170. Given the prevailing conditions, we expect the contract to touch ₹170 before the end of the year. On the upside, the price levels of ₹200 and ₹205 can cap the rally. Only a clear breach of ₹215 can turn the outlook positive for aluminium futures.
Strategy: Last week, we recommended initiating fresh short positions at around ₹205 with stop-loss at ₹220. Traders who implemented this can retain their short trades but modify the stop-loss to ₹205. Tighten this to ₹200 when the contract slips below ₹186. Exit all the shorts at ₹170.
For fresh positions, one should wait and go short with stop-loss at ₹205 only if price rises to ₹200 for better risk-reward ratio. Subsequent adjustments can be made as suggested above.