The nickel continuous contract on the Multi Commodity Exchange (MCX), which broke from ₹1,780 before a few weeks, rallied and hit a new high of ₹1,958.7 last Thursday. On the same day, the contract gave up all gains, ending the day on a flat note. This resulted in the candlestick forming a tombstone doji pattern, hinting at a price correction. The Relative Strength Index (RSI) on the daily chart is showing negative divergence. So, although the general trend is bullish, there may be a temporary moderation in MCX-Nickel futures prices.
Additionally, the cumulative open interest (OI) of nickel futures on the MCX fell to 2,282 contracts as of Monday from 2,644 contracts a few weeks ago. A rise in price accompanied by a fall in OI is generally considered an unwinding of long positions. Thus, buyers seem to exit at higher prices. Additionally, ₹1,900 is a strong resistance and the contract should close above this level, at least on a daily basis, to negate the weakness. Thus, the above factors show that the probability of the futures price falling outweighs the probability of it reaching new highs.
Considering the above factors, traders may risk initiating new short positions at the current level of ₹1,850. One can also consider adding shorts if the price goes back to ₹1,900. Place the initial stop loss at ₹1,965 and revise it to ₹1,900 if the price falls below ₹1,780. Exit the shorts at ₹1,670 – solid support.
March 01, 2022