The April futures contract of Zinc mini on the Multi Commodity Exchange (MCX) was in a downtrend for nearly two months until mid-March. Indeed, it registered a low of ₹125.8 last month but recovered immediately. It then started to chart a sideways trend, between ₹140 and ₹150. It has been in consolidation for nearly three weeks.

Notably, the price is now above the 21-day moving average. But the contract faces resistance at ₹150, and as long as it trades below that level, the next leg of rally cannot be confirmed. But there are indications of considerable bullish bias. The daily Relative Strength Index (RSI) has been rising and the Moving Average Convergence Divergence (MACD) indicator on the daily chart is signalling a shift in momentum towards the upside.

The resistance at ₹150 is significant as it coincides with the 38.2 per cent Fibonacci retracement level of the previous downtrend. A decisive break out of that level can trigger a substantial rally. Above ₹150, the immediate hindrance will be the price band between ₹158 and ₹160. Subsequent resistance can be spotted at ₹164. On the other hand, if the contract declines because of renewed selling pressure, it might retest the lower limit of the range, i.e. ₹140. A break below that level can drag the contract to its prior low at ₹125.8.

On the global front, the three-month rolling forward contract of zinc on the London Metal Exchange (LME) moved above the resistance at $1,900 on Tuesday, increasing the probability of further gain. A rally in global prices can also lift the price of MCX futures.

Trading strategy

The breakout of the LME contract has opened the door for a rally, at least in the short term. Also, the recent price action in the MCX contract indicates a bullish bias. But the contract has a critical resistance at ₹150. So, traders can initiate fresh long positions with stop-loss at ₹140, if the contract rallies above ₹150.

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