Technical Analysis

MCX-Aluminium in range-bound trade

Akhil Nallamuthu BL Research Bureau | Updated on December 09, 2019

The December futures contract of aluminium on the MCX has been on a downtrend since early September. But as we can see, the bearish momentum seems to be losing steam of late. This is corroborated by the Relative Strength Index (RSI). The daily RSI has formed a bullish divergence, an indication of trend reversal. Also, the MACD indicator is showing signs of recovery in price. Notably, the contract’s attempt to rally was arrested twice by the 21-day moving average. Hence, for the rally to sustain, it is critical for the contract to move past 21-DMA.

As we can observe in chart, the futures contract, currently trading at ₹132.8, is in the middle of the range between ₹130 and ₹135. So, the next leg of trend may be established only if the contract moves out of the range.

If the contract breaks out of the upper boundary of the range at ₹135, it can be expected to advance towards the resistance band between ₹138.8 and ₹140.5. A break above that level can turn the medium-term trend of the commodity bullish where the subsequent resistance is at ₹145. On the other hand, if the contract breaks below the lower boundary of the range, it can decline to ₹125.

Aluminium price on the LME has been volatile in the past week as the three-month rolling forward contract was moving between $1,745 and $1,790. Taking a broader view, we can find that the price action is developing into a contracting pattern on daily chart, as it forms lower peaks and higher lows. The key levels to watch for are $1,730 and $1,820.

Trading strategy

As the futures contract is trading between two key levels, traders are recommended to stay on the fence until it breaches either ₹130 or ₹135. Until a decisive break of these levels, traders can adopt range-bound trading strategies.

Published on December 09, 2019

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