MCX-Zinc confirms fresh breakout

The August futures contract of zinc on the Multi Commodity Exchange (MCX), which had been rising since the beginning of July, went into a consolidation phase in mid-July. Thereafter, it began oscillating between ₹172 and ₹178. Following that, the contract gathered momentum and broke out of the range on Tuesday and closed at ₹179.4, opening the door for further strengthening.

The relative strength index, though above the midpoint level of 50, has not made a fresh peak like the contract — a potential concern for the bulls. Nevertheless, the moving average convergence divergence indicator, which remains in the positive territory, continues to chart upward trajectory, and the price is well above the 21-day moving average (DMA). Moreover, the price action on the daily chart indicates a confirmed bullish flag pattern, hinting at the possibility of a sharp rally.

As the contract appears bullish, it is highly likely to advance to ₹190. Above that level, ₹195 can be a hindrance. According to the bullish flag pattern, the price could rally to ₹193. Thus, a short-term target anywhere between ₹190 and ₹195 seems reasonable. On the other hand, if the contract drops below ₹178, the break out can be considered invalid. This can lead to the price softening to ₹172. A break below this level can turn the outlook bearish, possibly dragging the contract towards the support at ₹166, where the 50-DMA lies.

On the global front, the three-month rolling forward contract of zinc on the London Metal Exchange (LME) confirmed a fresh breakout last week as it moved above the resistance of $2,225. The momentum is strong and the contract looks set to go up further.

Trade strategy: The contract on MCX has broken out of the range and the prevailing bullish momentum is likely to lift the price from current levels. Globally, the contract on LME substantiates the positive outlook. Therefore, traders can buy MCX-Zinc with a stop-loss at ₹172.