Commodity Calls

Commodity Call: MCX-Lead faces a critical hurdle

Akhil Nallamuthu BL Research Bureau | Updated on April 07, 2020 Published on April 08, 2020

The April futures contract of lead mini in Multi Commodity Exchange (MCX), which had been moving in a narrow range between ₹129 and ₹134, breached the upper limit of the range last week. While it would ideally mean that the contract is likely to gain, the breakout visibly looks weak and the price remains below the 21-day moving average (DMA). Also, the major trend remains bearish.

Nevertheless, there are indications of a bullish bias. The daily relative strength index (RSI), though below the midpoint level of 50, is in an upward trajectory. On the other hand, the moving average convergence divergence (MACD) indicator in the daily chart is hinting at a momentum shift in favour of the bulls.

Though the contract has broken out of the consolidation range and there are indications that signal bullishness, the contract should breach ₹136.3 — a significant hurdle. At that level, the 21-DMA and the 50 per cent Fibonacci retracement level of the previous bear trend coincide, making it a strong resistance. If the contract manages to rally past that level, it can advance to ₹142. The subsequent resistance is at ₹146. But if the contract fails to crack ₹136.3 and resumes its downtrend, the immediate support can be spotted at ₹129. Below that level, the contract could fall to ₹125.

On the global front, the three-month rolling forward contract of lead in the London Metal Exchange (LME) has been in a downtrend since the beginning of the year. But it recently bounced back, taking support at $1,600. However, the rally could not sustain and the contract began moving downwards last week. Any further weakening can weigh on the contract price in MCX.

Trading strategy

Even though there are signs of recovery, the trend in the global market remains negative and the futures contract of lead in MCX faces a resistance. Hence, traders can initiate fresh long positions with a stop-loss at ₹132 if the contract decisively breaches ₹136.3.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

Published on April 08, 2020

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