Technical Analysis

Outlook remains bearish for MCX-Zinc

Akhil Nallamuthu BL Research Bureau | Updated on February 27, 2020 Published on February 28, 2020

The March futures contract of Zinc Mini on the Multi Commodity Exchange (MCX) is in a substantial bear trend and it continued to decline in the past week. The contract closed with a loss in the past five weeks, indicating a considerable bearish momentum. Moreover, the price lies well below the 21- and 50-DMAs. As there are no visible signs of reversal, the contract will most likely weaken in the coming days.

Corroborating the bearish outlook, the moving average convergence divergence (MACD) indicator on the daily chart has extended further into the bear territory. On the other hand, though the daily relative strength index (RSI) is below the mid-point level of 50, it is also hovering around the over-sold levels. Both the indicators stay in the bearish zone.

On the back of the prevailing downtrend, the contract can be expected to decline further where the price might drop to ₹150. A break below that level might drag the contract to ₹144. But if the contract reverses trend and moves up, ₹159.7 — the 23.6 per cent Fibonacci retracement level of previous downswing — can act as a hindrance. Above that level, ₹164 can act as a resistance.

On the global front, the three-month rolling forward contract of Zinc on the London Metal Exchange (LME) tumbled in the past few trading sessions and registered new lows. It marked the lowest price since July 2016 at $2,026 on Tuesday. The price action indicates further weakness and the nearest support is at the psychological level of $2,000. The metal will be subject to considerable selling pressure until the price stays below $2,100.

Trading strategy

The metal continues to decline as the major trend remains bearish. The likelihood of an immediate recovery seems very low. Hence, traders can retain the bearish outlook and initiate fresh short positions on rallies with stop-loss at ₹162.

Published on February 28, 2020
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