The continuous contract of guarseed futures on the National Commodity and Derivatives Exchange (NCDEX) has been moving in a sideways trend during the first couple of months of this year. That is, the contract was largely oscillating between ₹3,800 and ₹4,000. But in March, it slipped below the lower boundary of that range i.e., ₹3,800 and decline to ₹3,720 levels.
However, the contract immediately reversed the trend and started moving upwards. If got back above ₹3,800 and in mid-April it even breached the critical level of ₹4,000. The rally continued post breakout and it marked a high of ₹4,370 in May. This is a strong hurdle and the contract has declined considerably after hitting this level in November last year. Similarly, the futures price began falling and it touched ₹4,000 level last week.
The bearish bias is corroborated by the relative strength index and the moving average convergence divergence indicators on the daily chart. Both have entered their respective bearish territories. The average directional index shows that the bears are having an upper hand over the bulls. Also, the price dropped below both 21- and 50-day moving averages and there is a good build-up in volume as the price falls, affirming the downtrend.
Nevertheless, the contract has a support at ₹4,000 which can provide some cushion for the bulls. Hence, traders can consider initiating fresh short if the contract breaks below the support of ₹4,000. While stop-loss can be at ₹4,140 target can be at ₹3,800 and ₹3,720.