For almost a month now, the zinc futures on the Multi Commodity Exchange (MCX) have declined . It started falling after marking a high of ₹383.4. That said, when the contract was hovering around ₹320 last week, we expected it to see a bounce towards ₹360 and then resume the downtrend, breaking below the support at ₹320.
However, the contract breached the support at ₹320 on Monday. This is crucial as trendline support and 50 per cent Fibonacci retracement of the prior rally coincide at this level. Thus, slipping below ₹320, the contract has turned bearish.
Going forward, the zinc futures is likely to decline further. It could drop to the support band of ₹286-292. A breach of this level can result in the contract falling to ₹260. But before that, as with any breakout and breakdown, there could be a retracement. In this case, the contract might inch up to ₹330. It is advised to accommodate this possibility in the trade plan. A rally above ₹330 is less likely, though.
Our trade recommendation would be to execute shorts in two legs. Initiate shorts worth three-fourths of the intended amount at the current level of ₹316 and add shorts for the remaining when it moves up to ₹330. Place the stop-loss at ₹340 and revise it to ₹325 when the price falls below ₹305. Liquidate all the shorts at ₹290.