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Early this week, the continuous contract of lead on the Multi Commodity Exchange (MCX) broke out of a notable barrier at ₹184. On Tuesday, the contract hit a high of ₹187.45. Although the price has now moderated to ₹182, the bias remains bullish.
The positive outlook is substantiated by fund flows. That is, lead futures on the MCX saw its cumulative open interest go up to 1,114 contracts on November 16 compared with 637 contracts on November 4. The rally in price along with an increase in open interest indicates a long build-up. Therefore, the current price softening to ₹182 is most likely to be a corrective decline.
The contract is expected to bounce from the current level of ₹182 or at ₹180. On the upside, lead futures have the potential to hit ₹192 in the coming weeks. The price band of ₹192-195 is a strong resistance area. Hence, traders can consider going long on lead futures.
Trade strategy
We suggest initiating fresh longs at the current level of ₹182 and add more longs when price dips to ₹180. Place stop-loss at ₹177at first. When the contract rallies past ₹188, tighten the stop-loss to ₹186. Book profits at ₹192. We might see a price drop off the resistance band of ₹192-195.
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