ZINC TODAY – Strong trend carries prices closer to potential resistance

Strong trend carries prices closer to potential resistance

5th September, 2016 11:38 AM by Will Adams

	Column 1	Column 2	Column 3	Column 4
0	Column 1 0 Short Term:	Medium Term:	Long Term:

	Resistances:R1	2296 20 DMAR2	2275 H&S targetR3	2321 Long-term DTLR4	2370.50 High so farR5	2416 HRLR6	2736 HRL

	Support:S1	2297 UTLS2	2296 20 DMAS3	2170 July 1 peakS4	2165 Recent lowS5	1962 Brexit-dipS6	1958 April peakS7	1444.50 Jan low

	Column 1
0	Stochastics:Bullish

	Column 1
0	Legend:MACD – moving average convergence divergenceSL – support lineDTL – downtrend lineFibo – Fibonacci retracement lineH&S – head-and-shoulder formationCOTR – commitment of traders report

|Technical CommentAnalysis

• Zinc’s rally flattened out during August but there is now another up leg, with prices setting a fresh high a week ago and then again on Thursday and each day since.
• Looking at the monthly chart (inset), prices have overcome the long-term DTL but are closing in on the HRL at $2,416 from the July 2014 high (which was set during one of the rallies that anticipated the production closures at Century et al but which started far too early).
• The stochastics remain bullish so the trend dominates for now.
• Given the gains already this year, we would not be surprised if upward momentum slowed and if profit-taking emerged, especially if copper continues to show weakness.

Macro factorsZinc is trending higher; bouts of profit-taking and producer selling are bound to be seen and at times are likely to dominate.  Fund activity had slowed in recent weeks. We wait to see in tomorrow’s data whether there has been fresh buying and/or short-covering by money managers.LME stock activity has slowed but the presence of a small backwardation in the c-3s is not attracting metal into warehouses yet. The backwardation is no doubt partially prompted by one entity holding 50-79 percent of nearby material.Option declaration is on Wednesday. The recent strength may be driven by delta-hedging against 2,646 lots of $2,400 calls. The nearest put position is 20 lots at a $2,300 strike, with 150 lots with a $2,275 strike.Overall, the fundamentals remain bullish (see the latest ILZSG report) so we expect the rally to extend but at a slower pace because the market will have to absorb more producer selling. ConclusionZinc’s rally has been robust and the limited pullbacks along the way suggest solid sentiment. The physical market is quiet because of the summer slowdown and because the run-up in prices has deterred buying. Given the extent of the gross long money managers’ position, there is an increased risk of profit-taking but for now what selling there is is being absorbed by the buyers.We would expect upward momentum to slow now that the market has entered resistance areas (see inset chart), which may prompt profit-taking. But dips are likely to be well supported, even if they are deeper than we have seen of late.We getting less bullish now that prices are approaching $2,400 and ample stocks should mean there is no shortage per se. Still, the upward trend is strong.All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.[/table][/table]