Commodity Calls

MCX-Zinc likely to depreciate

Akhil Nallamuthu BL Research Bureau | Updated on February 20, 2020 Published on February 21, 2020

The spot price of Zinc on the MCX slipped to a fresh one-year low of ₹169.55 on Thursday. Similarly, the February mini futures contract of the metal, which was moving in a sideways trend for the past one week, broke below the support of ₹166.4 on Wednesday. A daily close below that level can invite more bears dragging the contract lower. Notably, the contract price continues to remain well below the 21- and 50-DMAs, indicating a considerable selling pressure.

Though the prevailing trend is bearish, there are some indications that calls for caution. For instance, the MACD indicator on the daily chart is exhibiting a loss of momentum in the downtrend. Though the daily RSI is below the mid-point bearish zone level of 50, it is hovering in the oversold levels as well.

If the contract closes below the support level of ₹166.4, it is likely to decline to ₹162 in the coming days. A break below that level might drag the contract to ₹158. On the other hand, if the contract manages to turn the tide in its favour, the immediate hurdle will be at ₹170. Above that level, resistance can be spotted at ₹174.6.

On the global front, the three-month rolling forward contract of Zinc on the London Metal Exchange (LME), is seen struggling to break out of the resistance at $2,200. Currently trading at $2,128, it is trading near the multi-year low of $2,117. The metal will be subject to considerable selling pressure until the price stays below $2,200.

Trading strategy

The overall trend is bearish and the Zinc futures on the MCX has broken below a support and is heading lower. Moreover, the trend on the LME is bearish. As the possibility of MCX contract declining further is possible, traders can initiate fresh short positions with a stop-loss at ₹171.

Published on February 21, 2020
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