Commodity Calls

MCX-Zinc likely to extend downtrend

Akhil Nallamuthu BL Research Bureau | Updated on March 22, 2020

MCX-Zinc (₹135)

The March futures contract of Zinc Mini, which has been moving in a sideways trend between ₹150 and ₹158 for the past three weeks, broke below the lower boundary of the range on Monday, on the Multi Commodity Exchange (MCX).

Following this, the contract declined sharply as the major trend is bearish; it registered a fresh low of ₹123.6 on Thursday. The decline on Monday has confirmed a bearish continuation pattern on the daily chart, potentially indicating that the price could weaken to ₹115. The price remaining below 21- and 50-day moving averages (DMAs) indicates a bearish outlook.

The Moving Average Convergence Divergence (MACD)indicator on the daily chart is showing a renewed downward momentum as it extends deeper into the negative zone. But the daily Relative Strength Index (RSI) is in the oversold levels; but without any sign of bullish reversal.

On the back of the major downtrend, if the contract continues to decline, it might find support at ₹125. A break below that level can drag the contract price to ₹115. On the other hand, if the contract rallies from here, ₹145 can act as a considerable hurdle. Beyond that level, the resistance is at ₹150.

In the past week, the three-month rolling forward contract of Zinc on the London Metal Exchange (LME) declined after facing resistance at $2,040 — its 21-day moving average. On Thursday, it registered a fresh four-year low of $1,814. The major trend is bearish and the price action too indicates further drop in contract price. This can weigh on the price on the MCX.

Trading strategy

The overall trend of the metal has been bearish. Moreover, after a brief period of consolidation, the contract on the MCX has broken below a key support forming a lower low. Hence, one can take bearish view. Traders can short MCX-Zinc Mini on rallies with stop-loss at ₹150.

Published on March 22, 2020

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