MCX-Aluminium testing a key support level

From the final week of October last year, aluminium futures has been on a rally. The price of January futures rose from about ₹141 to reach ₹168 levels in mid-December. However, the contract was unable to extend beyond that level and the price action since past six weeks shows a horizontal trend. That is, it has largely been oscillating between ₹160 and ₹168.

But over the past week, the contract has been showing some sort of weakness – it has formed a lower high and the price is below both 21- and 50-day moving averages.

A breach of the support at ₹160, can improve the strength of bears, potentially dragging the futures to ₹155 – the 50 per cent Fibonacci retracement level of previous uptrend. Below ₹155, it can decline to 148.

Supporting the bearish view, the price of aluminium futures on the London Metal Exchange (LME) has been declining since past week and breached a key support of $1,975 on Monday.

Consequently, the futures contract on MCX is likely to drop further. But since it has a support at ₹160, traders can short with stop-loss at ₹164 if the contract breaks below ₹160.