Technical Analysis

MCX-Aluminium signals bearish bias

Akhil Nallamuthu BL Research Bureau | Updated on May 11, 2020 Published on May 12, 2020

The May futures contract of Aluminium on the MCX, after declining in end of April, has been trading in a tight range since the beginning of May. The price is oscillating between ₹130.7 and ₹132. As the contract is trading lower by about 6 per cent year-to-date and the price is below both 21- and 50-day moving averages (DMAs), a bearish bias seen on the charts.

Even as the price has been moving flat, 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 despite the price being in a tight range, the contract is showing signs of bearish inclination.

So, if the contract softens from current levels, the immediate support level is spotted at ₹128.3 — its prior low. A break below that level can pull the price down to ₹123. However, if the contract strengthens, there is an immediate resistance at ₹133.4. Beyond that level, the resistance is at ₹135.6.

On the global front, the price of three-month rolling forward contract of primary aluminium on the London Metal Exchange (LME) has also been in a sideways trend, as on the MCX. The price has been oscillating between $1,475 and $1,520. Though it is in a sideways trend for the past three weeks, the major trend is bearish. Hence, the likelihood of the contract going down is more as long as the price stays below $1,520. This can also weigh on the MCX contract.

 

Trading strategy

Though the futures contract in MCX is treading in a tight price band, the price action is hinting at a possible downward trend. Also, the major trend globally too is bearish. Hence, traders can initiate fresh short positions with stop-loss at ₹136.

Published on May 12, 2020

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