The Zinc futures contract traded on the Multi Commodity Exchange (MCX) fell 2.8 per cent to close at ₹125.5 per kg in the previous week, after encountering a key resistance at ₹130.
The contract has formed a bearish engulfing candlestick pattern in the weekly chart, which is a bearish reversal pattern, signals trend reversal.
On Monday, the contract declined 2.7 per cent, breaching its 21-day moving average as well as a key support at ₹124.5.
However, the contract found support at the 50-day moving average and the medium-term up trend-line at ₹122, and bounced up more than 1 per cent on test as a mark of respect to this trend-line support.
As the contract has reversed from a significant long-term resistance level of ₹130 and this downward reversal is backed by negative divergence in the daily price rate of change and moving average convergence divergence signify that the possibility of breaching the trend-line support is high.
The short-term outlook is bearish. Traders with a short-term perspective can consider selling the contract with a stop-loss at ₹128 levels.
Short-term view: The short-term uptrend that started from the early April low at ₹116 has come to a halt after encountering a key resistance at ₹130 levels last week.
The contract has since trended downwards. A decisive fall below the immediate support at ₹122 can drag the contract down to ₹120 and then to ₹116 in the short term. Key immediate resistances are at ₹126 and ₹130.
Medium-term view: Since taking key support at around ₹98 in early January, the contract has been on a medium term uptrend. As long as the contract trades above the vital support at ₹113, the medium-term uptrend will remain in place.
But, a conclusive fall below ₹113 will mitigate the uptrend and drag the contract to ₹110 or ₹107 in the medium term horizon. On the upside, an emphatic breakthrough of ₹130 will reinforce the uptrend and take the contract northwards to ₹134 and then to ₹138-140 band.
Note: The recommendations are based on technical analysis. There is a risk of loss in trading.