BL Research Bureau

Zinc price has been falling since October and consequently, the continuous futures contract of the metal on the Multi Commodity Exchange (MCX) also witnessed a considerable price drop. That is, after hitting a high of ₹326.6 in mid-October, the contract reversed the trend. It soon dropped below ₹300 and a month back it slipped below the support at ₹280.

Because of the swift fall in price, the 21-day moving average (DMA) has dropped below the 50-DMA, an indication of the medium-term trend turning negative. The relative strength index (RSI) and the moving average convergence divergence (MACD) on the daily chart has been on a descend since past couple of months. These factors hint at further depreciation.

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But since the contract has largely been flat of late, the RSI and the MACD is turning flat. However, this does not indicate a bullish trend reversal and the price action denotes that as long as the contract is below ₹280, the likelihood of more decline in price is high. A drop below ₹280 can drag it to the support at ₹260. A breach of this level means the futures can touch ₹250. On the other hand, resistance above ₹280 can be spotted at ₹290.

Considering the above factors, traders can initiate fresh short positions at current level and add more shorts when price rises to ₹280. Place initial stop-loss at ₹290. Book profits at ₹250. When price moves below ₹260, revise stop-loss to ₹270.