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Aluminium price continued its downtrend in the past week where the November futures contract of the metal on Multi Commodity Exchange of India marked an intra-week low of ₹130.5. The contract registered a loss of 3.7 per cent for the past week.
Price action, which formed a lower high and lower low — a considerable bearish signal. The moving average convergence divergence indicator continues to signal weakness. This keeps the near-term outlook bearish. But, plotting the daily relative strength index, there is a sign of a potential bullish divergence which indicates a possible loss of strength in bears, could limit the downside.
Continuing with prevailing weakness, if the contract continues its downtrend, it will find a support at ₹130. On further depreciation, it could even decline to ₹125 over the medium term. On the other hand, a recovery from current level will push the price upward to ₹134.3 — the 50 per cent Fibonacci retracement of previous bearish trend. Above that, there is a resistance in the band between ₹135 and ₹136. A break above those levels will turn the medium-term trend bullish.
The price of three-month rolling forward contract of Aluminium on the LME has been in a sideways movement recently. It is oscillating between $1,724 and $1,738 and trading marginally above the 21-day moving average. If price breaks above $1,738, it will face resistance at $1,750. Above that level, the commodity might attract fresh buying interest which could lift the price to $1,782. On the other hand, a break below $1,724 could drag the price to the support band between $1,700 and $1,712.
Trading strategy
The commodity looks weak and is undergoing a significant downtrend. As there are no substantial signs of a recovery, one can continue to maintain bearish view. Hence, traders can keep shorting MCX-Aluminium November futures contract on rallies with a stop-loss at ₹137 and look for medium-term target of ₹125.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.
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