Aluminium has been on an uptrend since May 2020. The continuous futures contract of aluminium on the Multi Commodity Exchange (MCX) began its rally from about ₹130 in May 2020. It has been on a rally since then and although it saw a price correction from ₹260 to ₹200 in October – November 2021, the major uptrend remains intact. The contract resumed the up-move and a month ago, it crossed over ₹260 resistance. It has since been continuously scaling new heights and is now trading around ₹300.
The price action does not show any sign of weakness and the likelihood of further rally is high. While ₹316 can be the nearest hurdle a decisive breach of this level can lift the contract to ₹350. On the downside, the nearest support is at ₹265 – its 21-day moving average (DMA), which is a dynamic support. Since ₹260 is a support, the price band of ₹260-265 is a strong base. Subsequent support can be seen at ₹250.
Strategy: Since the overall trend is bullish and the momentum is strong, one can consider initiating fresh long positions. But since the rally has been steep, should there be a correction, it can occur quickly. Therefore, traders are recommended to trail the stop-loss as and when price goes up to limit the loss. That is, buy aluminium futures at current level of ₹300 and accumulate if price moderates to ₹275. Place stop-loss at ₹260 i.e., ₹5 below the 21-DMA. Trail the stop-loss on the upside at ₹5 below the 21-DMA as it goes up. Exit the longs at ₹350.