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The prices of aluminium started recovering towards the end of last month. The metal’s October contract on the Multi Commodity Exchange (MCX) took support at ₹188 and has now risen to ₹210.
As the price rallied, there have been long build-ups revealing the arrival of fresh buyers. But this week, there is a dip in the cumulative Open Interest (OI), hinting buyers prefer profit booking. The cumulative OI, which was at 4,776 contracts on September 23, increased to 5,272 contracts on October 7 as the price rallied from ₹191.9 to ₹204.6 in the corresponding period. But then, it has come down to 4,749 contracts as of October 12.
The likelihood of traders booking profits is higher given that the contract is approaching the resistance band of ₹218-220. Therefore, fresh longs are not suggested and going short, too, is not a good idea, given some more room is left to rally.
Trade strategy
One can consider longs when the contract decisively breaches ₹220 or initiate short positions if the aluminium futures exhibit signs of bearish reversal after reaching ₹220. Until then, traders can stay away from executing new orders. That said, we will come up with analysis once the contract touches ₹220.
In case of holding buys, book profits at ₹218 and can re-enter if the resistance band of ₹218-220 is breached. On the other hand, traders with short positions can hold with a stop-loss at ₹222 since there are chances of reversing lower from the ₹218-220 region.
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