The zinc futures on the MCX (Multi Commodity Exchange) has been in a downtrend since April this year from about ₹380. The current leg of downtrend began nearly a month back after the corrective rally faced a resistance at ₹330.
The contract has begun today’s session with a gap-down and notably, it is now trading at ₹282 i.e., below the support band of ₹286-292.
Since the overall trend is bearish and the contract has slipped below the support, the probability of further fall is high. Supporting the bearish bias, the cumulative open interest (OI) of zinc futures on the MCX has increased to 1,835 contracts compared to 1,596 contracts two weeks back. A price decline along with increase in OI indicates short build-up.
From the current level, the nearest notable support is at ₹262, and we expect the contract to touch this level within a couple of months. But there is a possibility of a corrective rally to ₹292 from here.
Against this backdrop, we suggest initiating fresh shorts at the current level of ₹282 and add more shorts when price rallies to ₹292. Place stop-loss at ₹305.
When the price touches ₹270, revise the stop-loss down to ₹280. Liquidate the shorts when the contract falls to ₹262.
Since ₹262 is a strong support, we will most probably see a rebound after touching this level.