Technical Analysis

Bears gaining traction in MCX-Zinc

Akhil Nallamuthu BL Research Bureau | Updated on January 30, 2020

After consolidating between ₹179 and ₹185 for two months, the February mini futures contract of Zinc on the MCX had breached the lower boundary of the range on Monday. The contract faced resistance at ₹185.8 and started to decline, as 38.2 per cent Fibonacci retracement level of the previous downtrend coincided. With the decline, the contract has slipped below both 21- and 50-DMA, implying downtrend.

The daily relative strength index (RSI) has fallen below the mid-point level of 50 and the moving average convergence divergence (MACD) indicator on the daily chart hints more downside as it extends further into the negative territory. Along with the declining price, the daily Average True Range (ATR) increases indicating rising bearish momentum.

Until the contract remains below ₹180, the outlook will be negative. The contract can thus be expected to depreciate to ₹172 in the coming days. If that level is breached, it can potentially drop to ₹165. On the other hand, if the contract manages to reverse the trend and rises, ₹180 will act as a strong hurdle. Beyond that level, it can rally to ₹185.

The three-month rolling forward contract of Zinc on the LME has been on a decline for the past one week. Currently trading at $2,210, it has a considerable support at $2,200. Notably, $2,190 is the lowest price since July 2016. The recent trend has been bearish and there are indications of bears gaining traction. So, if the contract slips below $2,200, it will most likely tumble to $2,000.

Trading strategy

Though the price on the LME is trading near a support, the bear trend on the MCX and LME seems to be gaining traction. Moreover, the futures contract on the MCX has breached a key support, turning the medium-term trend negative. Thus, traders can short the contract on rallies with a stop-loss at ₹182.

Published on January 31, 2020

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