Technical Analysis

MCX-Zinc enters into a consolidation phase

Akhil Nallamuthu BL Research Bureau | Updated on November 28, 2019 Published on November 28, 2019

The bull run that began in January this year resulted in spot price of zinc on the Multi Commodity Exchange of India appreciating to ₹199.4 from ₹185, gaining nearly 8 per cent. However, the trend reversed in November and the price has dropped to the current market price of ₹189, there by losing 5 per cent. The price has been consolidating in the past few days, but the trend remains bearish.

The December futures contract of Zinc in MCX, like the spot price, has been falling since the beginning of November. The contract has dipped below both 21- and 50-DMAs, indicating a bearish outlook. The daily Relative Strength Index (RSI) has moved below the midpoint level of 50 and the MACD, is in the negative region, both hinting a negative outlook. But the price action shows that the contract seems to be consolidating as it treads sideways between ₹185 and ₹188.8. So, for the next leg of trend to emerge, the contract should either break above ₹188.8 or below ₹185.

If the contract breaks out of ₹188.8 on short-covering, it will face a hindrance at ₹192, beyond which it could appreciate to ₹195. On the other hand, a break below ₹185 can invite more selling that could drag the contract to ₹180.

On the global front too, the metal has been under pressure as the three-month rolling forward contract of Zinc on the LME has been depreciating from $2,550. Currently trading at $2,300, it has a strong support at $2,270. On the upside, $2,327 will act as a hurdle. Hence, until it breaches either $2,270 or $2,327, it cannot be expected to trend higher.

Trading strategy

As the December futures contract is consolidating in the band between ₹185 and ₹188.8, traders are recommended to stay on the fence until either of these levels are broken. The direction of the break could decide the next leg of the trend.

Published on November 28, 2019
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