The copper futures, which saw a corrective rally between mid-July and mid-August, resumed the downtrend after facing the resistance band of ₹680-700 in the second week of August. Since then, it has been forming lower highs and lower lows, tracing a falling channel.

There was a good short build-up between September 9 and September 23 as the cumulative Open Interest (OI) of copper futures increased from 5,760 contracts to 7,409 contracts as the price fell from ₹655 to ₹630. Nevertheless, the contract saw an appreciation in price last week and parallelly, the cumulative OI came down to 5,456 contracts last Friday.

However, it is not an indication of a bullish trend reversal as the contract is likely to meet the upper end of the falling channel at around ₹660 — a resistance. The 50-day moving average is at ₹650, another barrier that could block the recovery.

The above factors indicate that the contract could begin the downtrend between the current level of ₹643 and ₹660. Yet, there could be a pause before that.

Trade strategy

We have been recommending shorts over the past month at various price points between ₹640 and ₹675 with a stop-loss at ₹715. Traders who hold these positions can continue to hold. But modify the stop-loss to ₹685 now.

Bring the stop-loss further down to ₹670 when the contract slips below the support of ₹600. Tighten it further to ₹615 when the contract touches ₹585. Exit the shorts at ₹550. Fresh shorts can also be initiated at the current level with above-mentioned stop-loss and target levels.