The strong downtrend in the zinc futures contract on the Multi Commodity Exchange (MCX) that had been in place since late February has halted. The contract however has been stuck in a narrow range between ₹207 and ₹215 a kg for more than a week. It is currently trading at ₹212 per kg.

Wait for a breakout

A key support is at ₹207 and resistance is at ₹216. A breakout on either side of ₹207 or ₹216 will decide the next move for the contract. Until then the contract can continue to consolidate in the ₹207-₹216 sideways range for some more time.

If the contract manages to break the range above ₹216 decisively, the downside pressure will ease. Such a break can take the contract higher to ₹220 on the back of short covering.

On the other hand, if the MCX-Zinc futures contract declines below ₹207, it will come under renewed pressure. In such a scenario, a fresh leg of down-move touching ₹202 or ₹200 is possible.

On the chart, the bias is bearish. The 21-day moving average is on the verge of crossing below the 55-day moving average. This is a bearish sign indicating that the upside could be limited in the short-term. As such the possibility of the contract breaking the lower end of the range, that is, drifting below ₹207, in the coming days is high.

Trading strategy

Traders who have taken short positions last week on rallies at ₹214 can hold it and accumulate shorts at ₹216. Retain the stop-loss at ₹221 for the target of ₹201. Revise the stop-loss lower to ₹211 as soon as the contract declines to ₹208.

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

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