After the plunge occurred in 2008, zinc prices have been strongly bouncing back for several months. They are up 41% year-to-date and up 65% since the low posted on last December 12.
The breakout in April of an oblique resistance level gave some momentum to the price action after a period of consolidation. This oblique resistance cleared is actually the slope that goes through lower high points posted since the historical high of November 2006 (point A on the chart).
As expected, the price action reached the following resistance level identified around $1,630. This level corresponds to the previous low posted in last August. The price action peaked even higher, at $1,672.5 on June 12. Two weeks later, a correction has driven the price to $1,508 (10% lower).
The bullish trend in place has clearly weakened and the indicators suggest that a further technical retracement could build up during the next few weeks. Last week, the MACD has crossed below its signal line, triggering a bearish signal. The 30-day Momentum indicator has crossed below its 100-line for the first time since last March. It is confirmed by the Chande Momentum Oscillator (CMO) which had already detected a bearish divergence earlier this month.
Indeed, as the price action was posting a new high at $1,672.5 on June 12, the CMO did not confirm this and instead posted a lower high. It also crossed below its zero line and argues therefore for a continuation of the current bearish move.
In this scenario, we can expect that traders will want to test the new potential support levels. Investors who jumped back at the beginning of the year into commodities markets have the opportunity to lock substantial gains. As zinc was one of the best performers, it is likely that profit-taking will drive prices towards previous highs which may become new lows.
The first target could be then the level around $1,350, which corresponds to the top of the trading channel in place between November 2009 and March 2009.
Good investing,
Gabriel
