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The September futures contract of zinc in Multi Commodity Exchange (MCX), which has been rallying in the past couple of months, seems to have entered a consolidation phase. The contract is now oscillating between ₹192 and ₹200; but the price remains above the 21-day moving average (DMA). However, the rally seems to be weakening and a prolonged period of sideways movement can open up the likelihood of a correction.
The loss in the upward momentum is shown by the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators in the daily chart. The RSI is showing a bearish divergence and has been moving down slowly during the past week. The MACD has turned its trajectory downwards. While these are indications that the bears could be gaining ground, a downtrend cannot be confirmed until the price stays above ₹192.
On the back of the above developments, if the contract breaches the support at ₹192, the short-term outlook might turn bearish where the price could decline to ₹178 – the 61.8 per cent Fibonacci retracement of the previous rally. But if the bulls manage to come back and lift the contract above the critical resistance of ₹200, it can advance to ₹214 pretty quickly.
While the contract in MCX is showing signs of weakness, globally the uptrend remains strong. The three-month rolling forward contract of zinc in London Metal Exchange (LME) broke out of the important hurdle of $2,500, opening the door for further strengthening. A rally from here can positively impact the contract in the MCX.
Trading strategy
While the contract in MCX is charting a sideways trend, the price in the international market continues to rally considerably. Nevertheless, the next leg of trend will remain uncertain until the contract lies within ₹192 and ₹200. Importantly, the direction of break can be taken as a clue and fresh positions can be initiated along that direction.
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