MCX aluminium resumes short-term uptrend

Since recording a multi-year low at INR 93 per kg in October 2015, the aluminium futures contract traded on the Multi Commodity Exchange (MCX) has been on an intermediate-term uptrend.

However, the key resistance at INR 111 which is also 50 per cent Fibonacci retracement level of the prior downtrend, limited the contract’s rally in late February and again in late April this year. Subsequent decline found support at INR 103 in early May and began to move up.

On Monday, Jue 13, the contract gained 2 per cent breaking an immediate resistance at INR 106 to settle at INR 107.3. In addition, this rally has breached the contract’s 21 and 50-day moving averages and trade well above them.

On Tuesday, June 14, the contract was up by 0.3 to trade at INR 107.7. This recent breakthrough gives traders with a short-term perspective an opportunity to initiate fresh long position on the contract at current levels.

Short-term view : Since late March low at INR 98, the contract has been on a short-term trend. After finding support at INR 103 in May, the contract appears to have resumed its uptrend this week.

Strong rally above INR 106 is positive and short-term outlook is bullish for the contract. The daily relative strength index has entered the bullish zone from the neutral region and the weekly RSI is heading towards this zone. Further, there is an increase in daily volume over the past five trading sessions.

The daily as well as weekly price rate of change indicators are featuring in the positive territory implying buying interest. The contract can extend its rally and test resistance at INR 111 in the near term. An emphatic breakthrough of INR 111 can accelerate the uptrend and take the contract higher to INR 116 and then to INR 120 in the short term.

Buy the contract in dips while maintaining a stop-loss at INR 102. Immediate supports are at INR 106 and INR 103. Strong fall below INR 103 will alter the uptrend and drag the contract down to INR 100 or INR 98.

Medium-term view : The medium and intermediate-term is up for the contract. Strong breakthrough of INR 111 will reinforce the bullish momentum and take the contract higher to INR 120 in the medium term. Next key resistance is at INR 125. Key supports to note are placed at INR 104 and INR 98. Conclusive fall below INR 98 will alter the uptrend and pull the contract down to INR 95 or INR 93 in the medium term.

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