The Lead futures contract on the Multi Commodity Exchange (MCX) has reversed sharply higher after making a low of ₹151.7 a kg on Tuesday. The contract has surged over 3 per cent from this low and is currently trading at ₹156.5 per kg. Inability to break below ₹150 since the beginning of this month reflects lack of fresh sellers to drag the contract further lower. A strong bounce this week indicates that the downtrend that has been in place since February is weakening.

Reversal pattern

The price action over the last three weeks indicates the formation of a double bottom pattern on the chart. This is a bullish reversal pattern that signals that the downtrend has come to an end. The neckline resistance of this pattern is at ₹159. A strong break and a decisive close above this hurdle will complete the pattern. Such a break will trigger a fresh rally targeting ₹165 and ₹167 levels going forward.

On the other hand, if the contract fails to breach ₹159 and reverses lower, it can fall to ₹152 – an intermediate support level. A break below ₹152 can drag the contract further lower to ₹151 and ₹150. The outlook will turn bearish only if the contract breaks below ₹150 decisively. This is less probable. But if it does, then the contract can target ₹148.

Trade strategy

Traders with a medium-term perspective can go long at current levels and also accumulate on dips at ₹155 and ₹153. Stop-loss can be placed at ₹151 for the target of ₹166. Revise the stop-loss higher to ₹159 as soon as the contract rallies to ₹162.

Note: The recommendations are based on technical analysis and there is a risk of loss in trading.

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