The September futures contract of zinc on the Multi Commodity Exchange (MCX), which had been moving in a sideways trend between ₹192 and ₹200, broke below the lower boundary of the range on Tuesday. Consequently, it has also slipped below the 21-day moving average (DMA), giving it a bearish bias. Currently hovering at ₹187, a break below a support at ₹184 can trigger a considerable sell-off.

The negative bias is corroborated by the relative strength index (RSI) and the moving average convergence divergence (MACD) indicator on the daily chart. The RSI has been falling along the price and has now slipped below the midpoint level of 50. Whereas, the MACD has been tracing a downward trajectory for a while. But importantly, the contract has a considerable support at ₹184 and it should breach this level to confirm a bearish reversal.

On the back of the prevailing weakness, if the contract breaks below the support of ₹184, it can drop to ₹176. Below that level, it can even decline to ₹168. But if the contract gains momentum and bounces off the support at ₹184, it can rise to ₹192. Subsequently, it can move towards the important level of ₹200. So, the price level of ₹184 holds the key.

Similar to the contract on MCX, the three-month rolling forward contract of zinc on the London Metal Exchange has witnessed a correction from $2,575 to $2,420. If the price breaches a support at $2,400, a deeper correction can be expected, where the contract might be dragged to $2,350 and $2,300. A decline in global price can weigh on the contract on MCX.

Trading strategy

The recent price action indicates that the contract on MCX has more room for correction. The global price movement, too, hints at that possibility. However, MCX-Zinc has a strong support at ₹184. So, traders can short the contract with a stop-loss at ₹192 if the price decisively breaches below ₹184.

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