For nearly two weeks, the prices of aluminium have been stuck in a range. Consequently, the aluminium futures (January expiry) on the Multi Commodity Exchange (MCX) has been oscillating in the narrow price band of ₹208-211.
Having said that, aluminium has not been trending since July and the chart shows that the futures has been fluctuating within ₹205 and ₹218. The January futures, is now quoting at ₹209, is near the lower boundary of the broader ₹205-218 range.
Therefore, one can consider buying as the risk-reward ratio is good for long positions.
We expect the futures to rally to ₹218 in the near-term. A breakout of this can help establish aluminium futures a leg of rally, possibly to ₹250. On the other hand, a breach of the support at ₹205 can turn the outlook negative which could lead to a fall to ₹186.
Trade strategy
Given that the risk is lower compared to the potential upside, we recommend buying MCX aluminium futures at the current level of ₹209. Add more longs if the price dips to ₹206. Keep the stop-loss at ₹203 at first and move it up to ₹210 when the contract crosses over ₹214. Liquidate the longs at ₹218.