The aluminium futures on the Multi Commodity Exchange (MCX) (₹248) bounced off a key support at ₹225 last week, in line with our expectation. However, the overall trend is still bearish and a decisive breakout of ₹260 can probably change the near-term outlook positive.
Also, note that ₹252 is a resistance and there is a good chance for the contract to resume the downward movement anywhere within the price band of ₹252-260.
Should it start falling again as we forecast, it could invalidate the support at ₹225 this time and the contract could even drop towards the crucial level of ₹200. But this is a strong support where it is highly likely that aluminium futures could establish a fresh medium-term uptrend where it might appreciate to retest ₹250 levels.
Given that the probability of fall from the price band of ₹252-260 is high, we suggest traders can consider initiating fresh short positions. Currently the contract is at around ₹248. Wait for it appreciate to ₹252 and then go short at that level. Initial stop-loss can be placed at ₹268. Once the price drops below ₹225, revise the stop-loss down to ₹245.
Further, tighten it to ₹230 when the futures drop below ₹210. Liquidate all the shorts at ₹205. Thereafter, fresh trades can be decided based on how the contract reacts to the support at ₹200.
May 23, 2022