Zinc futures contract on the Multi Commodity Exchange (MCX) has been trading in a sideways trend recently – the May expiry futures has largely been oscillating within ₹230 and ₹240.

Although the broader trend has been bearish, the zinc futures seem to be attracting buyers, especially over the past couple of weeks. Last week, it formed a hammer candlestick pattern and also, the price action shows signs of buying between ₹230 and ₹235.

However, for the contract to confirm a bullish reversal, the contract should break out of ₹240. In such a case, we can see a quick rally towards ₹255 – a resistance. Subsequent resistance is at ₹262. On the other hand, if the contract falls below ₹230, there is an immediate support at ₹225. A breach of this can mean the bears could drag the contract ₹210 and then possibly to ₹200.

Overall, the next leg of the short-term trend depends on which direction the contract moves out of the ₹230-240 range.

Trade strategy

In mid-April, we recommended going short on zinc futures at ₹252 and place stop-loss at ₹262. The stop-loss was modified to ₹245 last week. We suggest further tightening of stop-loss to ₹242 and hold the shorts. Exit when the price falls to ₹225.

But reverse-averse traders can book profits at the current level of ₹238.

For fresh positions, one needs to wait for the breach of the ₹230-240 range.

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