Technical Analysis

Downtrend strengthens in MCX-Aluminium

Gurumurthy K, BL Research Bureau | Updated on December 31, 2018 Published on December 31, 2018

Traders can stay out of the market for some time

The Aluminium futures contract on the Multi Commodity Exchange (MCX) extended its fall last week as expected tumbling 4 per cent and is currently trading at ₹128 per kg. A crucial support is near current levels at ₹127. Whether the contract manages to reverse higher from this support or not will determine the direction of the next move. Traders can stay out of the market for some time.

If the MCX-Aluminium futures contract manages to bounce from ₹127, an upmove initially to ₹131 or ₹132 is possible. A further break above ₹132 will then increase the likelihood of the contract extending its upmove to ₹135 or even ₹138 thereafter.

On the other hand, if the contract declines below ₹127 decisively, the downside pressure could increase. It will see strong and fresh sellers coming into the market. Such a break will increase the likelihood of the contract tumbling towards ₹122 – the 200-week moving average support thereafter.

Global trend

The Aluminum (3-month forward) contract has broken is $1,900-$2,000 per tonne sideways range in the past week. The contract spiked to make a high of $1,998 in initial part of the week. However, it failed to sustain higher and reversed sharply lower breaking below the key range support level of $1,900. The contract has tumbled over 7 per cent from the high and is currently trading at $1,845 per tonne.

The level of $1,900 will now act as a strong resistance. The outlook will turn positive only if the LME-Aluminum contract breaks above $1,900 decisively. But such a strong upmove looks less likely at the moment.

A fall to $1,800 is possible in the near term. If the contract manages to bounce from $1,800, a recovery rally to $1,900 can be seen. In such a scenario, the contract may remain range bound between $1,800 and $1,900 for some time. An eventual break below $1,800 will then increase the possibility of the contract tumbling towards $1,765 or $1,750 thereafter.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

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