Farm commodities under pressure, so focus on hard assets

The markets witnessed a lower turnover last week as the traders displayed caution ahead of the expiry of the April series. The week-on-week market-wide turnover on the MCX fell by 1%. The market-wide open interest fell by 6%.

The MCX turnover gainers during the week were aluminium, gold, natural gas, nickel and silver. The open interest gainers were cardamom, cotton, copper, crude oil, gold, silver and zinc. Risk appetite was seen returning on select base metals as the onset of summer typically witnesses increased industrial activity in the West after the snowmelt. The US non-strategic petroleum reserves were higher by four million barrels at 373 million barrels. The USD continued to be choppy vis-a-vis the Indian rupee and could be a significant factor in determining near-term prices. Traders should focus on hard assets as the farm commodities are appearing to be under pressure.

Agri commodities

Mentha oil has closed at its lowest weekly close after the week to February 4, 2012 and has surrendered gains in a fortnight that took eight weeks to achieve. This speaks of the weakness existing in the undertone. Even cyclically, the summer months are bearish for this commodity which the prices are now reflecting. Avoid all fresh longs as any pull back rally will get sold into. Market internals indicate a 60% decrease in turnover and a 30% decrease in open interest.

Potato has shown resilience and the bulls will have to keep the counter above `1,060 if the upthrust is to continue in the near term. The bullish momentum is likely to accelerate above `1,125. Market internals indicate a 46% decrease in turnover and a 3% decrease in open interest.

Sugar M Kol has seen some profit sales and the trader interest has compressed as the lower volumes and open interest indicate. `2,725 remains a near-term support and as long as the price stays above this level, the bulls stand a chance of an upthrust. Market internals indicate a 92% decrease in turnover and a 21% decrease in open interest.

Metals

Aluminium has gained on a week-on-week basis and triggered a high risk buy for the momentum players. `105 will act as a near-term support and all longs may be held with a stop-loss at this level. The bears will return only if `103 is violated. Market internals indicate a 5% increase in turnover and a 40% decrease in open interest.

Copper has witnessed a sharp rally as the weekly close has been at its highest since the week to March 5, 2012, which underscores the bullishness in the market. As long as the bulls manage to defend `434 in case of a decline, the upthrust remains intact. Nurse a bullish bias for now. Market internals indicate a 3% decrease in turnover and a 71% increase in open interest.

Gold has rallied for the fourth week in a row and logged a lifetime high weekly close on the MCX. Much of the gain is due to the currency factor and any further weakness in the Indian rupee can add winds in the sails for the bulls. Should fuel prices be hiked at the pump level, the resultant inflation spike will add to the upward momentum in the near term. Nurse a bullish bias for now. Market internals indicate a 2% increase in turnover and a 25% increase in open interest.
Nickel is at a critical juncture as the `950 hurdle has proved to be the nemesis of the bulls in the last four weeks. `910 is likely to be a support, which makes the counter ranged between these thresholds. Any breakout beyond these levels will indicate the trade for the bulls / bears in the coming week/s. The probability of an upthrust appears higher than a decline as of now. Market internals indicate a 1% increase in turnover and a 13% decrease in open interest.

Silver continues to remain constrained within a bearish channel and `53,000 needs watching as a support in the coming week/s. With the expiry of the prompt month series around the corner, there may be increased volatility and the possibility of a price spurt as the rollover costs get factored in. Avoid fresh longs till the `57,000 hurdle is intact. Any breakout above this threshold must be on high volumes and open interest expansion. Market internals indicate a 15% increase in turnover and an 8% increase in open interest.

Zinc has logged the highest weekly close after the week to July 30, 2011 and that indicates the bullishness in the undertone as the summer is cyclically a positive phase for industrial assets. Should the closing be consistently above `105, the outlook is likely to improve further as there will be upward momentum. Hold a bullish bias for now. Market internals indicate a 15% decrease in turnover and a 16% increase in open interest.
Energy

Crude oil has logged its highest weekly close after the week to September 19, 2008 and that speaks of the bullish undertone prevalent in the counter. That the price has rallied in spite of the 4-million-barrel increase in the US commercial reserves, makes the upmove more noticeable. Should the Indian rupee weaken further against the US greenback, further rallies cannot be ruled out. Hold longs for now. Market internals indicate a 26% decrease in turnover and a 14% increase in open interest.

Natural gas has notched gains after a three-week decline and testing all-time lows on the MCX in recent weeks. The weekly closing is at its highest after the week to March 24, 2012. Fresh upsides cannot be ruled out as long as the bulls manage to defend `108 in case of declines. Hold existing longs for now. Market internals indicate a 65% increase in turnover and a 62% decrease 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 exposure to silver futures discussed above