MCX-Zinc trading with bearish inclination

Akhil Nallamuthu BL Research Bureau | Updated on September 24, 2020 Published on September 24, 2020

The October futures contract of zinc on Multi Commodity Exchange of India (MCX), which has been rallying since July, made a U-turn in early September from ₹200. The price dipped sharply over the subsequent trading sessions.

The contract then attempted to make a recovery as it went up by taking support at ₹186 last week. But the rally did not sustain and the contract fell again, and is now trading just above a support level of ₹186. The 21-day moving average (DMA) coincides at ₹186, making it a considerable support.

Since the price action is biased to downtrend, indicators such as the relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart hints that bears are the favourites in the fight against the bulls. While RSI has declined and now stays below the midpoint level of 50, MACD has entered the bearish zone. This means, a breach of the support at ₹186 can result in a sharp fall.

If the contract slips below the support of ₹186, it will most likely depreciate to ₹178. The subsequent support is at ₹170. But if the contract regains momentum and advances, the first hurdle it can face is the resistance in the band between ₹197 and ₹200. A breakout of ₹200 can intensify the rally possibly appreciating to ₹208.

On the global front, the three-month rolling forward contract of zinc on London Metal Exchange has formed a lower high and the price pattern hints at clear loss of upward momentum. The contract is currently hovering at $2,450 and a break below $2,400 can result in sharp fall.

Trading strategy

The contract on MCX is showing signs of a bear trend brewing and a similar price pattern can be observed in the global price movement. Nevertheless, MCX-Zinc has a support at ₹186. So, traders can wait for now and open fresh short trades with a stop-loss at ₹197 if the price breaches the support of ₹186.

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Published on September 24, 2020
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