Technical Analysis

Outlook bearish for MCX-Zinc

| Updated on December 26, 2019 Published on December 26, 2019

The spot price of Zinc on the MCX, after trading in a sideways trend since the beginning of December, closed below the range on Tuesday. It registered a fresh 11-month low of ₹176.

Likewise, the December futures contract of Zinc on the MCX closed at ₹176.25 on Tuesday, breaking below the range between ₹181 and ₹185. This opens the door for further decline in the contract price. The contract depreciated after failing to move past the 21-DMA resistance at ₹184. The daily Relative Strength Index (RSI) has made a new low, similar to the price action, indicating considerable strength in bearish momentum.

Noticeably, the RSI is hovering around the oversold levels. The bearish bias is further corroborated by the moving average convergence divergence (MACD) indicator. The MACD on the daily chart is exhibiting a fresh downtick, adding to the bleak outlook of the metal.

The fresh breakdown will most likely drag the contract towards ₹170 in the coming days. Below that level, the support is at ₹165.7. On the other hand, if the contract gains from current levels, it will face a hurdle at ₹181, above which the resistance is at ₹185.

The corrective rally of the three-month rolling forward contract of Zinc on the London Metal Exchange (LME) was capped at $2,350 — the 38.2 per cent Fibonacci retracement level of the previous bear trend. Thus, the downtrend seems to have resumed. However, unlike the price on the MCX, the LME contract did not register fresh lows and trades above 21-DMA at $2,267. Currently trading at $2,274, the support levels are at $2,260 and $2,200.

Trading strategy

Since the overall trend is bearish for MCX-Zinc and the futures contract in MCX has breached the lower boundary of the range, it can be approached with a bearish bias. Traders are advised to initiate fresh short position on rallies with a stop-loss at ₹186.

 

Published on December 26, 2019
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