The Aluminium futures contract on the Multi Commodity Exchange has reversed sharply lower after rising initially in the past week. The contract touched a high of ₹125.5 a kg on Wednesday and has come off sharply from there. It has tumbled over 3 per cent from this high and is currently trading near ₹121.5.
The near-term outlook is negative with a key resistance at ₹122. As long as it stays below ₹122, a fall to ₹120 is possible.
A further break below ₹120 will increase the likelihood of the contract extending its fall to ₹118.5. The level of ₹118.5 is a strong channel support for the contract, which is likely to limit the downside. A further fall below this support is less probable. An upward reversal from ₹118.5 will keep the channel movement that has been in place since March intact. Such a bounce-back will increase the possibility of the contract rallying to ₹124 levels once again in the coming weeks thereafter.
Traders can stay out of the market at the moment. Traders with a medium-term perspective can consider taking long positions on dips at ₹120.
Keep the stop-loss at ₹118 for the target of ₹124. Accumulate longs at ₹119 if the contract declines, breaking below the immediate support at ₹120. Revise the stop-loss higher to ₹121 as soon as the contract moves up to ₹122.
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