Nevertheless, there may be a corrective rally to 252
Aluminium price has been under the influence of bears for the last two months. Thus, the continuous futures of the metal on the Multi Commodity Exchange (MCX) has seen a sharp drop in price. Consequently, the contract has breached some key supports and is currently hovering around ₹233. We had suggested going short before a couple of weeks with target at ₹225. Traders can liquidate their shorts at ₹225 since the likelihood of a bounce from this level is high. This is because a rising trendline and the 50 per cent Fibonacci retracement of prior rally coincide at ₹225, making it a good support.
Nevertheless, the overall trend is bearish and so the recovery can be capped at ₹252 from where it can be expected to resume the downtrend. Thereafter, the futures might eventually slip below ₹225 and drop to ₹200. But also note that the corrective rally from ₹225 to ₹252 is not a given and traders should plan fresh trades accordingly.
While one can exit the existing shorts at ₹225, for fresh shorts, one can decide based on how the contract reacts to ₹225. So, there are two alternatives. One, initiate fresh short when the contract rallies to ₹252 and place stop-loss at ₹268. Once it falls below ₹225, revise the stop-loss to ₹240. Exit the shorts when price falls to ₹200. Two, if the contract breaches the support at ₹225 without witnessing a corrective move to ₹252, execute fresh shorts with stop-loss at ₹240. Liquidate the shorts at ₹200.