The continuous zinc futures on the MCX (Multi Commodity Exchange) has been on a rally for the past one month since finding support at around ₹260. Last week, it closed at ₹322.5 and had gained about 24 per cent in a month.
On Tuesday, it extended the rally and is testing resistance at ₹340. This is an important level because the 61.8 per cent Fibonacci retracement level of the prior downtrend coincides with this hurdle, which means the bulls have a job on hand.
If ₹340 is invalidated, the rally will be extended to ₹360, a minor hurdle. A breach of this level can lift the contract to ₹383.
But if there is a decline off the barrier at ₹340, the contract may moderate to ₹310 – a resistance-turned-support level. Yet, a drop below this level in the near-term is less likely.
Given the prevailing conditions, although the price action is bullish, traders can wait until the resistance at ₹340 is taken out. Our recommendation would be to go long if the contract breaches ₹340 and place stop-loss at ₹315. Exit three-fourth of the longs at ₹360 and tighten the stop-loss to ₹345. Liquidate the remaining at ₹380.
But rather than breaking out of ₹340, if the contract declines, wait until the price drops to ₹310 and then go long. Place a stop-loss at ₹295. Shift the stop-loss to ₹315 when the contract resumes its rally and moves past ₹340. Make adjustments as mentioned above when zinc futures rise above ₹360.