The continuous futures contract of cottonseed oilcake (COCUDAKL) on the National Commodity and Derivatives Exchange (NCDEX) could see a fresh fall from the current levels as it appears to have hit a roadblock.
Although it has been on a rally since October this year after bouncing off ₹2,230, the broader trend remains bearish. By closing at ₹2,679 last week, it has lost nearly 14 per cent year-to-day till November 18.
Besides, there is a confluence of resistances. Last week, it fell off the barrier at ₹2,835 where the 50-week moving average (WMA) and the 50 per cent Fibonacci retracement level of the prior fall coincide. Also, the weekly candlestick chart shows a formation of an inverted hammer pattern last week, indicating a potential bearish reversal.
In addition, there has been considerable drop in the open interest (from 44,040 contracts on October 31 to 36,200 on November 18), showing longs are being unwound as the expectation of the contract rallying past the hurdle at ₹2,835 fades.
Considering these factors, the current levels could be a good place to initiate fresh shorts on NCDEX cottonseed oil cake futures. On the downside, it is likely to retest ₹2,450 before the end of this year.
Go short on NCDEX-Cocudakl futures now at around ₹2,690 and add more shorts when it rises to ₹2,750. Place initial stop-loss at ₹2,875. When the contract slips below ₹2,580, tighten the stop-loss to ₹2,720. Book profit at ₹2,450.