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The futures contract of cottonseed oilcake (COCUDAKL) on the National Commodity and Derivatives Exchange (NCDEX), that hit a peak of ₹2,208 in the final week of November last year, started to come off as the trend gradually turned down.
But the price band of ₹1,980 and ₹2,000 was strong enough to limit the fall. This level was tested twice in December.
Subsequently, the February expiry futures rallied and marked a high of ₹2,181 last week. Yet again the rally could not sustain and the price started to soften.
The contract, as it can be observed on the daily chart, has formed a lower low and the price action resembles a harmonic pattern i.e. bearish bat, which can be taken as a warning. However, the pattern is yet to be confirmed.
Nevertheless, not just the pattern, indicators like the relative strength index and the moving average convergence divergence on the daily chart too signals weakness.
From the above indications, the support band of ₹1,980 and ₹2,000 seems to be the key. In case bulls draw strength from this support and take the contract upward, it can probably rally towards ₹2,110 and ₹2,180. However, if the support is invalidated, a downtrend is almost a given and the price can depreciate to ₹1,925 and ₹1,900 in the short run. Below this level, the support lies at ₹1,830.
While one can desist from taking fresh entries now, short position can be initiated below the support band with stop-loss at ₹2,060.
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