The downtrend in the aluminium futures contract on the Multi Commodity Exchange that has been in place since February remains intact. The contract fell towards ₹130 per kg as expected. It made a low of ₹129.7 per kg on Wednesday and has slightly bounced up from there. It is currently trading at around ₹131 per kg.
Relief rally
Though the overall outlook remains bearish for the contract, there is a possibility of an intermediate rally in the coming days before it resumes the downtrend. Support is at ₹130. As long as the contract sustains above this support, a relief rally toward ₹134 or ₹134.5 is possible in the near-term on the back of short-covering. Further, an up-move beyond ₹134.5 is unlikely as the indicators on the charts continue to remain negative. The 21-day moving average is on the verge of crossing below the 200-day moving average. This is a negative sign indicating that the upside for the contract could be limited in the short term.
A downward reversal from the ₹134-₹134.5 resistance region can drag the contract lower towards ₹130 again. A break below ₹130 will then increase the likelihood of the contract moving down towards ₹127 or even ₹125 in the coming weeks.
Trading strategy
High risk appetite traders with a medium-term perspective can go short on rallies at ₹133 and ₹134. Stop-loss can be placed at ₹135.5 for the target of ₹129. Revise the stop-loss lower to ₹132 as soon as the contract moves down to ₹131.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.