Technical Analysis

MCX-Zinc hovers at a key support

Akhil Nallamuthu BL Research Bureau | Updated on December 05, 2019 Published on December 05, 2019

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The December futures contract of Zinc on the MCX, after breaking below the range ₹185 and ₹188.8, it declined over the past week. The contract registered a low of ₹180.55 and is currently trading at ₹183.5. Comparing it with the current spot market price of zinc on MCX (₹185.2), we can notice that the futures contract is at a discount compared to the spot price — a bearish indication.

The daily RSI is showing an uptick following a bullish close on Wednesday. Also, it has also bounced from the oversold levels. However, there are no definitive signs indicating bullish strength. The MACD indicator on the daily chart remains in the negative territory.

If the recent pull back gets momentum, the contract can be expected to retest ₹180.55 — its prior low. Below that level, the contract can be expected to depreciate to ₹174. On the other hand, if the contract appreciates from current level, it will have resistances at ₹185 and ₹188.8.

On the LME, the three-month rolling forward contract of Zinc has been witnessing selling pressure. It breached the support at $2,270 and fell to $2,201, before bouncing to the current market price of $2,246. Even though the recent trend is bearish, $2,200 is a strong support. Further depreciation can be expected only if it breaks below that support. On the upside, the contract has a resistance at $2,270.

Trading strategy

Though the trend is bearish, the spot price of zinc in MCX and forward price on the LME is hovering at a strong support. This may arrest further decline in the MCX futures contract in the near-term. Hence, fresh short positions are not recommended at this juncture. However, traders with a high-risk appetite can buy at current levels with a tight stop-loss as risk-reward is favourable for longs.

Published on December 05, 2019
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