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In July last year, the continuous futures contract of guarseed on the National Commodity and Derivatives Exchange (NCDEX) embarked on a rally that turned out to be significant. The price, which was around ₹4,000 in July 2020 touched a high of ₹6,794 towards the end of August this year. Post this, the contract lost traction and started to see price moderation and reached ₹5,680 in early September. But the contract attempted to resume the uptrend as a result of which the price bounced to ₹6,620 level. However, the rally could not sustain and the contract has fallen back below ₹6,200.
The price action on the daily chart shows a double top, a bearish hint; although the pattern is yet to confirm, there are other factors too that signal weakness. The relative strength index (RSI) is showing a bearish divergence and the moving average convergence divergence (MACD) indicator is exhibiting bearish signal. Given the current circumstance, the contract should breach ₹6,800 in order for the contract to continue the rally. And longer the contract stays below this level, higher the likelihood of a price decline.
Considering the above factors, despite the major trend is up, the contract is in a position to witness a price correction. Hence, traders can consider initiating fresh short positions with stop-loss at ₹6,520. The contract can drop to ₹5,680, which can be the primary target. Below this level it can touch ₹5,400.
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