Zinc futures on the Multi Commodity Exchange (MCX) is on a decline over the past few sessions. It fell off the resistance at ₹275. Therefore, the contract has been rejected between ₹270 and ₹280 for the second time in as many months. Hence, the uptrend is facing strong resistance.
The 38.2 per cent Fibonacci retracement of the prior downtrend lies at ₹270 and ₹280 is a notable barrier. So, the price region between ₹270 and ₹280 is a considerable resistance band. The current fall is likely to extend to ₹250, an important support.
If bears drag the contract below ₹250, it can be a strong bear signal. In such a case, zinc futures might see a quick fall to ₹230, a support. A breach of this can result in the contract dropping to ₹205. The price band of ₹200-205 is a support against which the contract can rebound.
On the other hand, if zinc futures recover from the current level of ₹260 and break out of ₹280, it can establish another leg of uptrend, which can potentially take the contract to ₹300 quickly. However, as it stands, the possibility of this appears low.
Trading strategy
Although the chances for zinc futures falling to ₹250 is high, the risk-reward ratio is unfavourable now. So, traders can wait and go short if the contract rises to ₹270. Target and stop-loss can be ₹250 and ₹280 respectively.