Technical Analysis

MCX-Aluminium charting a downtrend

Akhil Nallamuthu BL Research Bureau | Updated on May 25, 2020

File Photo   -  Reuters

The June futures contract of Aluminium in Multi Commodity Exchange (MCX) has been in a downtrend since the beginning of March. The price lies below both 21- and 50-day moving averages (DMAs) and the price action on the daily chart is forming lower highs and lower lows, keeping the outlook bearish. For the current month, the contract has lost a little over 2 per cent so far and it has posted loss in the preceding couple of months as well.

As the trend looks downwards, the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD)on the daily chart are in their respective bear zones. While the RSI is below the midpoint level of 50, the MACD remains in the negative territory. The above factors indicate that the likelihood of further decline is more.

On the back of the prevailing bearish bias, if the contract weakens from the current levels, it might slide to ₹125, which can act as a support. Below that level, the contract can fall to ₹120. But if the contract reverses the trend, it will face an immediate resistance at ₹132.5 – its 21-DMA. Subsequent resistance is at ₹135.

On the global front, the price of three-month rolling forward contract of primary aluminium in London Metal Exchange (LME) has also been in a sideways trend for over a month. The price has been oscillating between $1,470 and $1,520. Though it is in a sideways trend for the past three weeks, the major trend is bearish for the metal. Hence, the likelihood of the contract going down is more until the price stays below $1,520. This can also weigh on the MCX contract.



Trading strategy

While the contract in LME is consolidating, the contract in MCX has been moving lower and the trend is bearish. Indications are that the downtrend is likely is continue. Hence, traders can initiate fresh short positions on rallies with stop-loss at ₹135.

Published on May 25, 2020

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