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The markets witnessed a lower turnover last week as traders displayed caution on bullion. The week-on-week market-wide turnover on the MCX fell 4 % as the ‘higher base’ effect also played a part. The market-wide open interest fell 2 %.

The MCX turnover gainers were cardamom, lead, mentha oil and sugar. The open interest gainers were cardamom, copper, gold, nickel and potato. The US non-strategic petroleum reserves were lower by 3.4 million barrels at the 331.2 million barrel mark, but could not support the prices of oil as the demand contraction was expected to offset the positive trigger in the absolute near term.

This week is likely to witness some bullish action in silver and industrial metals; short term trends may be governed by volatility in the currency values. I expect to see increased choppiness in the forex markets.

Agri commodities

Mentha oil has seen a very sharp rise in volatility as cold weather conditions have triggered a spurt in demand with the bulls exerting pressure due to profit-taking at higher levels. Unless the price stays above the Rs1,600 threshold sustainably, avoid fresh buys. Watch the Rs1,440 level as a near-term support. Market internals indicate an 85% increase in turnover and an 18% decrease in open interest.

Potato has recovered on a week-on-week (w-o-w) basis but the upsides were limited by profit sales from the cautious bulls. The existence of the previous resistance at the Rs765 levels of February 2011 also has a bearing on prices as bulls play cautiously near that level. Avoid fresh exposure for now. Market internals indicate a 17% decrease in turnover and a 5% increase in open interest.

Sugar M Kol was advocated as a buy at the Rs2,750 level and has bounced from that threshold along expected lines. Traders holding longs may start booking profits at the Rs2,850 levels in a staggered manner. Market internals indicate a 1% increase in turnover and a 39% decrease in open interest.

Metals

Aluminium has managed to close with marginal gains on a w-o-w basis as the bullish sentiment prevailed. The Rs112 level continues to prove to be a hurdle for the bulls to overcome. Unless this hurdle is overcome forcefully on a sustained closing basis, a dependable upthrust maybe elusive in the near term. Market internals indicate a 29% decrease in turnover and a 3% decrease in open interest.

Copper has managed to rally on a w-o-w basis but witnessed selling pressure at higher levels. A clear and forceful breakout above the Rs425 levels will be required to signal a sustainable upthrust. The outlook still remains optimistic though and existing longs may be held. Market internals indicate a 2% decrease in turnover and a 5% increase in open interest.

Gold has remained in a consolidation mode as was advocated last week, due to the action shifting to base metals. The weekly range is contracting and the turnover is easing on a falling base. Avoid fresh positions till a breakout / draw down is seen. Market internals indicate a 2% decrease in turnover and a 4% increase in open interest.

Nickel continues to outperform base metals as the price is now nearing the critical Rs1,045 level which must be overcome if the bulls are to get a fresh leg up. Momentum indicators seem to indicate a buy on dips approach and traders are resorting to buy-and-hold rather than trade for the day itself — a fact confirmed by the rising open interest. Hold longs. Market internals indicate a 14% decrease in turnover and a 39% increase in open interest.

Silver is showing signs of waking up from its slumber on the medium- / long-term charts as the range expansion has occurred on the upside. Although turnover leaves things to be desired for, buy on dips in the mini / micro lots in the prompt month series in a deliberately staggered manner on declines. Market internals indicate a 1% decrease in turnover and a 14% decrease in open interest.

Zinc has rallied mildly on a w-o-w basis but the upside was curtailed by profit sales. For a sustainable upthrust to occur, the price must stay above the Rs103 levels on higher volumes and open interest expansion. Bullish bets are off below the Rs97 levels. Market internals indicate a 4% decrease in turnover and an 18% decrease in open interest.

Energy

Crude oil has reacted lower along expected lines. Last week, I had advocated pressure as long as the price stayed below the Rs5,275 level, which was not even visited. The falling inventory in the USA failed to stem the profit-taking pressure and the bulls were on the defensive. Avoid bargain-buying for now. Market internals indicate a 13% decrease in turnover and a 14% decrease in open interest.

Natural gas has extended the decline for a fortnight and the range expansion has been towards the downside. The prices of crude oil and gas have fallen in tandem — they tend to have an inverse correlation most of the times — and I expect the gas prices to reach a bottom in the near term, where a bounce — temporary if not absolute — may be seen. Cover shorts on dips. Market internals indicate a 16% decrease in turnover and a 1% decrease in open interest.

— The columnist is the author of A Traders Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com or (0) 9323720291.

Fair disclosure: The analyst has exposure to aluminium futures discussed above