The inability of the contract to consolidate between 1,210 and 1,240 saw the October futures breaking the support at 1,200 on Friday before ending the week slightly higher. The bulls showed reluctance to take charge at the 1,220 level for fear of having to long cover their positions should the equity market correct further. Some traders attributed the correction last week to a change in global sentiment that resulted in the futures contracts' premium to the cash index being converted into a discount. The futures closed at a 2-point discount to the underlying index.
Technically, the Commodity Channel Indicator has moved back to oversold territory but the selling has yet to dry up, delaying any initiative for a technical rebound. The supportive momentum in the futures market may not be enough for the October contract to defend the 1,200 level this week. In this regard, should the October contract move lower, it may in turn entice short-term traders to increase their long positions for a short play, as was noticed last week.Given the absence of a strong bull presence, the futures contract is unlikely to trend anywhere above the resistance line at 1,240. Tactically, despite the small discount to the cash index, there may still be trading opportunities in the futures market, especially when it touches its support line. A negative crossover has been initiated on the Moving Average Convergence Divergence indicator which could add pressure on the current 1,200 support line. On this note, we have shifted the October's contract support line to 1,180.
Technical outlook
The Moving Average Convergence Divergence indicator turned negative with the faster below the signal line. Both lines remain at the positive region. The daily Relative Strength Index closed at the neutral.The daily Commodity Channel Index finished at the oversold.
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