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In the first week of 2023, the aluminium futures on the Multi Commodity Exchange (MCX) bounced off the support at ₹200.
It is currently testing a crucial level at ₹220. Apparently, the resistance at ₹220 is also the neckline of an inverted head and shoulder (H&S) pattern, a confirmation of which will indicate a bullish reversal.
A breakout of ₹220 will open the door for a rally to ₹250 in the short term. The contract is likely to reverse within the price band of ₹250-256, which is considerable resistance. Above ₹256, the immediate resistance is at ₹272.
If the contract sees a correction from the current level of ₹220, it is likely to find support at ₹210 and ₹205.
Trade strategy
The indication is clear about a rally from the current level. However, on the back of the resistance at ₹220, we might see a price correction to ₹210. Given these factors, traders can stay out now and initiate fresh long positions when the contract decisively breaches the hurdle at ₹220.
Place stop-loss at ₹210 at first and revise it up to ₹220 when the contract moves above ₹232. Further, tighten the stop-loss to ₹232 when the price rallies above ₹240. Exit the longs at ₹250.
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