Commodity Calls

MCX-Aluminium under bear grip

Akhil Nallamuthu BL Research Bureau | Updated on October 28, 2019

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.

Published on October 29, 2019

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