Aluminium price has been under the influence of bears for the last two months. Thus, the continuous futures of the metal on the Multi Commodity Exchange (MCX) has seen a sharp drop in price. Consequently, the contract has breached some key supports and is currently hovering around ₹233. We had suggested going short before a couple of weeks with target at ₹225. Traders can liquidate their shorts at ₹225 since the likelihood of a bounce from this level is high. This is because a rising trendline and the 50 per cent Fibonacci retracement of prior rally coincide at ₹225, making it a good support.
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Nevertheless, the overall trend is bearish and so the recovery can be capped at ₹252 from where it can be expected to resume the downtrend. Thereafter, the futures might eventually slip below ₹225 and drop to ₹200. But also note that the corrective rally from ₹225 to ₹252 is not a given and traders should plan fresh trades accordingly.
While one can exit the existing shorts at ₹225, for fresh shorts, one can decide based on how the contract reacts to ₹225. So, there are two alternatives. One, initiate fresh short when the contract rallies to ₹252 and place stop-loss at ₹268. Once it falls below ₹225, revise the stop-loss to ₹240. Exit the shorts when price falls to ₹200. Two, if the contract breaches the support at ₹225 without witnessing a corrective move to ₹252, execute fresh shorts with stop-loss at ₹240. Liquidate the shorts at ₹200.