The continuous contract of nickel on the Multi Commodity Exchange (MCX), which broke out of ₹1,780 before a couple of weeks, rallied and hit a fresh high of ₹1,958.7 last Thursday. On the same day, the contract gave away all the gains, ending the day on a flat note. This resulted in the candlestick forming a gravestone doji pattern, hinting at a price correction. The relative strength index (RSI) on the daily chart shows a negative divergence. So, although the overall trend is bullish, there can be a temporary price moderation in MCX-Nickel futures.

Also, the cumulative open interest (OI) of nickel futures on the MCX has dropped to 2,282 contracts as on Monday from 2,644 contracts a couple of weeks back. A price rise along with a drop in OI is generally assumed as unwinding of long positions. Thus, the buyers seem to exit at higher prices. In addition, ₹1,900 is a strong resistance and the contract should close above this level, at least on a daily basis, to negate the weakness. So, the above factors show that the probability of the futures price dropping outweighs the probability of it scaling new heights.

Considering the above factors, traders can risk initiating fresh short positions at current level of ₹1,850. One can also consider adding shorts if price rallies to ₹1,900. Place initial stop-loss at ₹1,965 and revise it to ₹1,900 if price falls below ₹1,780. Exit the shorts at ₹1,670 – a strong support.

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