Since the final week of November, 2020, the February futures of aluminium on the Multi Commodity Exchange (MCX) has been charting a sideways price pattern. It has been largely fluctuating between ₹160 and ₹168.
There are signs of bearish inclinations that the contract has started to display over the past one month. That is, during this period, the contract has formed a lower high and the price is currently below both 21- and 50-day moving averages (DMAs).
The 21-DMA has crossed below the 50-DMA, a potential indication of medium-term bearish trend reversal. Also, the volume with which the contract fell on Wednesday is another sign. Additionally, indicators like the relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart are signalling bearish signs. The RSI has slipped below the mid-point level of 50 whereas the MACD has entered the negative territory.
The above factors substantiate the argument of a possible downswing in price from the current levels. However, ₹160 is a considerable support. So, traders can take the breach of this support level as confirmation and once that occurs, fresh short positions can be initiated with stop-loss at ₹164. Below ₹160, the contract is likely to decline to ₹154 – the 50 per cent retracement level of previous uptrend. If this does not hold price can fall to ₹150.