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The narrow consolidation band of ₹180-183, within which the continuous contract of lead on the Multi Commodity Exchange (MCX) was trading over the past couple of weeks, was invalidated last week. That is, the contract saw a sharp fall last Friday resulting in the breach of the support at ₹180.
On Tuesday, the contract closed at ₹176.3, and the price action indicates further fall from here. On the back of the long build-up witnessed between September 23 and October 14, it was expected that the contract to break out of the resistance at ₹184. However, that did not occur and in fact, there has been considerable unwinding of longs over the past two weeks following the decline in price. The cumulative Open Interest (OI) of lead futures on the MCX dropped to 780 contracts on Tuesday (October 25) compared to 1,184 contracts on October 14.
Considering the above factors, we expect the lead futures to witness a decline from the current level of ₹176. We forecast the contract to see a slip below the support at ₹173 and touch ₹166 in two or three months.
Trade strategy
Short MCX-Lead futures at the current level of ₹176 and add more shorts if there is an up move to ₹180. Place stop-loss at ₹185 at first. When the contract price drops below ₹173, tighten the stop-loss to ₹181. On a fall below ₹170, bring the stop-loss further down to ₹175. Exit the shorts at ₹168.
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