Commodity Analysis

MCX-Zinc faces a key resistance

Akhil Nallamuthu BL Research Bureau | Updated on October 13, 2019 Published on October 10, 2019

The support band between ₹181 and ₹182.65 seems to have arrested the decline of the October futures contract of Zinc. The metal in fact has gained 2.5 per cent since the beginning of the week and is currently trading around ₹184.5. The relative strength index shows a bullish divergence indicating a possible trend reversal and the moving average convergence divergence indicator too has started showing a recovery.

However, the contract faces a resistance at ₹186 levels. If the buying momentum help the contract to break out of the resistance at ₹186 levels, it will face a crucial hurdle at ₹191. Beyond ₹191, the medium-term trend will become bullish which could potentially take the price to higher levels.

 

 

 

On the other hand, if the commodity contract weakens from current level, it will most likely retest the previous low at ₹181 levels. If that level fails to hold, the price can depreciate to ₹177.3 below which the support is at ₹174.

Since the beginning of the month, the three-month rolling forward contract of zinc in LME has been trading within a tight range between $2,270 and $2,328. Though the support at $2,270 looks very strong, the price continues to trade below the 21-DMA.

If $2,270 holds and price appreciate from that level, then as that would become a higher low compared to the low made in the month of September, the contract might go on to break the resistance band between $2,300 and $2,320 beyond which it could retest $2,400 levels. Alternatively, a break below $2,270 will drag the price to $2,200 levels.

Though the commodity is showing signs of recovery, it is important to wait until the resistance level at ₹191 is invalidated for the rally to be sustainable. Also, the long-term trend is still bearish. Hence, traders are advised to wait until either ₹181 or ₹191 is breached to confirm the next leg of trend.

Published on October 10, 2019
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