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The aluminium futures contract on the Multi Commodity Exchange (MCX) spiked to a high of ₹137.25 a kg on Wednesday last week, but could not sustain higher. The contract reversed lower from then breaking below the key support level of ₹135. It is currently trading at ₹134.3 per kg.
Crucial supports
The contract is hovering above crucial supports at the moment. The 200-day moving average support is at ₹133.8 and then a crucial long-term trend line support is at ₹133. Whether the contract breaks below ₹133 or not will decide the next move. A strong break below ₹133 will increase the downside pressure. Such a break will then increase the likelihood of the contract tumbling towards ₹130 or ₹129.
On the other hand, if the contract manages to sustain above ₹133 and bounces higher, it will ease the downside pressure. It will also be positive from a medium to long-term perspective as a bounce from ₹133 will keep the long-term uptrend intact. A strong upward reversal from ₹133 will take the contract higher to ₹135 and ₹37 initially. Further break above ₹137 will then clear the way for the next targets of ₹140 or even higher levels over the medium-term.
Trading strategy
Traders who have taken short positions on a break below ₹135 last week can hold it. Revise the stop-loss lower to ₹135.5 per kg for the target of ₹133. Move the stop-loss further lower to ₹134.5 as soon as the contract moves down to ₹133.75.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.
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