Avoid building fresh longs in metals

The markets witnessed a lower turnover week as traders displayed caution in bullion. The partial holiday had an impact on turnover too. The week-on-week market-wide turnover on the MCX fell by 21%. The market-wide open interest rose by 2%.

The MCX turnover gainers during the week were crude oil, crude palm oil and mentha oil. The open-interest gainers were cardamom, crude oil, gold, lead, natural gas, potato, silver and zinc.

The strengthening rupee exerted downward pressure on hard assets, and is likely to continue doing so. Avoid building up aggressive fresh longs in the industrial and/or precious metal counters. Energy prices too are expected to seek lower levels.

Agri commodities
Mentha oil has violated the Rs1,200 levels and closed convincingly below this threshold. Should active support remain elusive, a further decline of Rs30 - 60 cannot be ruled out. Avoid bargain buying for now. Market internals indicate a 9% increase in turnover and a 1% decrease in open interest.

Potato is showing signs of consolidation after a rollover-related rally. For the bulls to return with strength, the price must stay above the Rs1,125 levels. Till such a rally occurs, avoid fresh longs. Market internals indicate a 27% decrease in turnover and a 9% increase in open interest.

Metals
Aluminium has witnessed a sharp decline and an inside formation on the weekly charts. The weekly charts indicate a breakout from a descending triangle and technical corrections should see support emerging at the Rs108 level, which is a triangle top. Watch signs of support at this threshold. Market internals indicate a 30% decrease in turnover and a 25% decrease in open interest.

Copper has fallen in tandem with aluminium and the retracement after a breakout from an inverse head & shoulder pattern should see no closing lower than the Rs438 level. Fresh bullishness is indicated above the Rs460 levels only. Market internals indicate a 31% decrease in turnover and a 16% decrease in open interest.

Gold has reacted after a strong rally as the strength in the rupee weighed on bullion prices. Watch the Rs31,100 level as a crucial support level. Fresh buying should be considered only above the Rs32,000 levels sustained on a consistent-closing basis. Market internals indicate a 22% decrease in turnover and a 4% increase in open interest.

Nickel has recorded a “shooting star” pattern on the weekly candle charts and a sustained decline below the Rs950 level will mark the beginning of a corrective phase.For the upward move to resume, bulls must defend the price, closing above the Rs960 level. Market internals indicate a 6% decrease in turnover and a 22% decrease in open interest.

Silver has reacted in tandem with gold. The Rs61,750 level will need watching. A fresh buy mandate is above the Rs64,000 level only. Market internals indicate a 31% decrease in turnover and a 2% increase in open interest.

Zinc has declined marginally, but maintained the higher tops and bottom formation. The pattern is a bearish ‘harami’ candle which implies possible weakness.  Only a sustained trade above the Rs114 level will indicate a resumption of the upthrust.

Energy
Crude oil has fallen after a sustained eight-week upthrust. The Rs4775-4800 band will need watching as a near term support area. Market internals indicate a 6% increase in turnover and a 14% increase in open interest.

Natural gas has seen a decline in line with crude oil prices. The weekly western bar charts indicate an inside pattern where as the weekly candle chart indicates a ‘harami’ pattern formation. Await a forceful and confirmed breakout past the Rs160 mark before initiating fresh buys. In case of declines, watch the Rs148 level as a near-term support. Market internals indicate a 31% decrease in turnover and a 27% increase in open interest.

The columnist is the author of  A Trader’s Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com
Fair disclosure: The analyst has no exposure to any of the commodities recommended above