Commodity Calls

Pressure mounts on MCX-Zinc

Gurumurthy K BL Research Bureau | Updated on November 27, 2018 Published on November 27, 2018

Traders can go short if contract reverses lower from the ₹180-181 resistance zone

The Zinc futures contract on the Multi Commodity Exchange (MCX) fell sharply in the past week. This was contrary to our expectation for an upmove towards ₹200 per kg. The MCX-Zinc futures contract tumbled breaking below the key support level of ₹187. The contract has plummeted over 7 per cent from around ₹190 on November 20 and is currently trading at ₹176 per kg. Though there is a support near current levels around ₹175, the contract looks vulnerable and a break below this level will increase the likelihood of a fall to ₹171 in the coming days. A further break below ₹171 will then drag the contract lower to ₹167.

On the other hand, if the contract manages to sustain above ₹175, a bounce to ₹180 and ₹181 is possible in the near term. The level of ₹181 is a crucial resistance. Only a strong break above this hurdle will ease the downside pressure and turn the outlook positive. In such a scenario, a relief rally to ₹185 and ₹187 is possible. But, inability to breach ₹181 will continue to keep the contract under pressure. It will also increase the possibility of the contract declining below ₹175.

Support ahead for LME-Zinc

On the global front, the Zinc (three-month forward) contract on the LME is hovering above a crucial support level of $2,430 per tonne. It is currently trading at around $2,487 per tonne. If the contract manages to sustain above $2,430 and move higher, an upmove to $2,550 is possible. A further break above $2,550 can then target $2,630.

On the other hand, if the LME-Zinc contract breaks decisively below $2,430, it can fall initially to $2,390. A further break below $2,390 will then increase the likelihood of the contract tumbling towards $2,300 or even $2,260 thereafter.

Trading strategy

Short-term traders with high risk appetite can wait for a bounce and go short if the contract reverses lower from the ₹180-181 resistance zone. Stop-loss can be placed at ₹186 for the target of ₹171. Revise the stop-loss lower to ₹178 as soon as the contract moves down to ₹175.

(Note: The recommendations are based on technical analysis and there is a risk of loss in trading)

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