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The continuous futures contract of crude oil on the Multi Commodity Exchange (MCX), which established its latest uptrend in November 2020, faced its first considerable challenge in March this year.
The rally topped out at ₹4,985 and fell to a low of ₹4,219 in the final week of March. That is, the contract lost a little over 15 per cent in a span of two weeks. However, the contract found support in the price band between ₹4,200 and ₹4,220 and started to consolidate.
Bulls started to build momentum on the back of the above support band and pushed the contract upwards. But then, the rally started to lose traction, after marking a high of ₹4,950.
Consequently, the price has gone below both 21- and 50-day moving averages (DMAs) and is hovering around ₹4,600. While the contract has its nearest support at ₹4,570, the weakness that is creeping in could drag the price below that support.
Corroborating the bearish bias, the relative strength index has slipped below the mid-point level of 50 and the moving average convergence divergence indicator, though stays in the positive territory, is showing fresh bearish sign.
Given the above factors, traders can consider going short in crude oil futures. Since ₹4,570 is a support, initiate fresh sell positions below this level with stop-loss at ₹4,720. Below ₹4,570, the price could fall to ₹4,320.
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