The continuous futures contract of chana (gram) on the National Commodity and Derivatives Exchange (NCDEX) has rallied since the beginning of 2021. Taking support at around ₹4,400 in early January, the contract rose and topped ₹5,900 in April, rising by 34 per cent within four months. However, the contract was unable to move beyond the resistance at ₹5,900 and subsequently started falling.

While falling sharply from ₹5,900 levels, it found support at ₹5,150 in mid-May and the decline was arrested. The contract then started to chart a sideways trend wherein it largely oscillated between ₹5,150 and ₹5,330.

However, in early June, the support at ₹5,150 was breached, turning the outlook negative. The minor corrective rally was blocked by the 21-day moving average, which limited the recovery at about ₹5,180. Therefore, the price band of ₹5,150 and ₹5,180 is a resistance band. The contract began another leg of downtrend from these levels before a week and on Monday, it broke below the crucial support of ₹5,000. The contract also slipped below ₹4,900 – the 61.8 per cent Fibonacci retracement level of the prior rally. Thus, the likelihood of further decline is high.

Substantiating the bearish outlook, the relative strength index and the moving average convergence divergence indicators on the daily chart remain in their respective bearish zone. Also, the contract is consistently forming lower lows and lower highs, indicating good downward momentum. So, traders can short the contract with stop-loss at ₹5,000 for a target of ₹4,500.

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