Technical Analysis

MCX-Nickel faces a crucial barrier ahead

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

The price of nickel, which has been in a major downtrend, has come off its recent low and has been inching up since last week. The April futures contract of Nickel on the MCX had registered a new low of ₹800 last Thursday and bounced from that level. But the recovery faces a significant hurdle as it hovers near a resistance band between ₹865 — the 38.2 per cent Fibonacci retracement level of previous fall — and ₹875. For the contract to build a sustainable rally, it has to decisively breakout of this band.

Despite the recent recovery, certain factors continue to indicate that the trend remains bearish. For instance, the contract price is below both 21- and 50-DMAs and the MACD indicator on the daily chart stays in the negative territory. On the other hand, the daily RSI is flat, but remains below the mid-point level of 50.

Facing a resistance band, if the contract resumes its downtrend, it could decline to the nearest support at ₹830. A break below that level can drag the price to its previous low at ₹800. But if the contract breaches the resistance band, it can turn the medium-term trend bullish and the contract could advance to ₹890. Above that level, it can even rally to ₹925.

On the global front, the three-month rolling forward contract of Nickel on the London Metal Exchange (LME), has been in a downtrend. Until the price remains below $12,000, the contract will be bearish. A drop in global price of the metal can weigh on the contract on the MCX.

Trading strategy

The overall trend of Nickel remains bearish and the futures contract on the MCX is facing a substantial resistance band. So, traders can take bearish view and short the contract. Place a tight stop-loss as a daily close above ₹875 can result in a strong rally.

Published on March 25, 2020

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