Market Strategy

Dissector: Short-term rally in aluminium

Yoganand D | Updated on September 15, 2012 Published on September 15, 2012

In this commodity dissector we take a close look at aluminium. MCX Aluminium futures, traded on the MCX (Multi Commodity Exchange of India), have been on a long-term uptrend ever since bottoming out at February 2009 low around Rs 62. It closed at Rs 116.95 per kg on Friday. However, after marking a peak at Rs 124 in May 2011, the commodity reversed its direction and started to decline. Since then, it was on an intermediate-term downtrend until it found support around Rs 100 in August this year.

This support at Rs 100 coincides with 38.2 per cent Fibonacci retracement level of its prior uptrend. Triggered by positive divergence in daily indicators, the commodity resumed its long-term uptrend that has been in place since February 2009.

On September 3, it emphatically broke through its key resistance at Rs 105 by jumping 3.5 per cent. Thereafter, its uptrend accelerated sharply breaching key resistances at Rs 110 and Rs 115 backed by good volumes.

Nevertheless, the commodity is currently facing a key resistance band between Rs 118 and Rs 120. Moreover, the daily relative strength index and moving average convergence divergence indicators are featuring in the over-bought territory implying a near-term correction in the price. A downward reversal from the aforesaid resistance band will pull the commodity down to Rs 110 in the near-term. However, medium- and long-term trends remain up.

Following the correction, an emphatic breakthrough of Rs 120 will take aluminium northwards to Rs 130 and then to Rs 142 in the medium-term. Subsequent important resistance for the commodity is at Rs 151. It has key long-term support at Rs 100. A fall below this level will pull the commodity down to Rs 90.

Short-term view

Aluminium has been on a short-term rally since the last month trough at Rs 100. As long as the commodity trades above Rs 107 (a trend deciding level; 200-day moving average is also positioned around this level), this uptrend remains in place. Near-term supports are at Rs 113.5 and Rs 110.

A fall below Rs 107 will mitigate the uptrend and pull it down to Rs 103 and Rs 100. Decisive rally above Rs 120 will encounter resistance at Rs 124.


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