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The continuous contract of crude oil on the Multi Commodity Exchange (MCX), which began the recent rally in November 2020 from about ₹2,540, extended the upward movement in 2021 as well. Even though the contract faced resistance at about ₹4,900, which resulted in the price seeing a moderation twice from that level between March and May this year, it broke out of that level in June. The futures kept rallying and marked a fresh high of ₹5,733 in early July. But since then the contract has been weakening as it started losing momentum.
The contract dropped to ₹4,870 in the latter half of July from where it attempted to resume the uptrend. However, it could not go beyond ₹5,500 where the bears again overpowered bulls, resulting in the another decline. Nevertheless, the support at ₹4,870 continued to provide cushion and until Wednesday, the contract was hovering above this price level. While prolonged consolidation could have given a chance for the bulls the recover, the selling pressure built up over the past few trading sessions dragged the contract below the key level of ₹4,870.
Substantiating the bear trend, the 21-day moving average (DMA) has slipped below the 50-DMA; relative strength index (RSI) and the moving average convergence divergence (MACD) are in their respective bearish territory. Hence, the crude oil futures is likely to drop further but there could be a corrective rally. So, traders can sell the contract on rallies with stop-loss at ₹5,000. It could fall to ₹4,530 and possibly to ₹4,400.
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