Comment

The markets witnessed a higher turnover week as traders displayed higher risk appetite in day trades. The week-on-week marketwide turnover on the MCX rose 25%; the marketwide open interest rose 22%.

The MCX turnover gainers during the week were copper, crude oil, crude palm oil, gold, lead, silver, sugar and zinc, while the open interest gainers included aluminium, crude palm oil, gold, natural gas, potato, silver and zinc. US non-strategic petroleum reserves were lower by 1.9 million barrels, at 334.2 million barrels, but worries on economic contraction kept prices in check.

This week is likely to be dominated by movements of the rupee as RBI intervention is likely to cause large price swings in the currency peg, thereby impacting commodity prices. Caution should be the buzzword and traders should cut back on exposure levels to protect their capital.

Agri commodities
Mentha oil has been in a decline for the fourth week in a row and the dragon fly doji indicated weakness last week that confirms outlook as bearish. A sustained trade below the Rs1,300 levels especially on a closing basis will accelerate the declines. Sell on any corrective bounce of 2% or higher with a view to roll over shorts. Market internals indicate a 17% decrease in turnover and a 3% decrease in open interest.

Potato has rallied marginally for the second week in a row and the bullish hammer on the weekly charts indicates ample support on declines in the near term. The overall outlook remains under pressure as the weekly chart indicates a bearish trendline capping gains. Market internals indicate a 23% decrease in turnover and a 9% increase in open interest.

Sugar M Kol has seen a bullish piercing pattern on the weekly charts as the weeks range made sizeable inroads into the prior week’s range (>50%) and that has optimistic implications for the near term. As long as the Rs2,900 levels hold on a closing basis, hold longs for now. Market internals indicate a 15% increase in turnover and a 43% decrease in open interest.

Metals
Aluminium has declined for the second week in a row but is still to violate the lows of the week ended December 3, which was a significant upthrust candle on the weekly Jap charts. For any buy signal to be triggered, it is critical that the Rs110 resistance be overcome forcefully, and till such a breakout occurs, desist from fresh buying. The rising open interest suggests a short build-up. Market internals indicate a 3% decrease in turnover and a 37% increase in open interest.

Copper has reacted lower from the threshold of a resistance provided by a bearish trendline on the weekly charts. The metal should be treated as under consolidation as long as the swing pivot at the Rs378 level holds. Should this level be violated, the bears may emerge in strength. On the flip side, a forceful rally past the Rs420 levels will be a pre-requisite for a fresh rally. Market internals indicate a 1% increase in turnover and a 17% decrease in open interest.

Gold has fallen as the rupee gained strength vis-a-vis the US dollar and the overseas markets too indicated weakness. The view last week that the weekly bars showed an absence of range expansion on the upside, which raised red flags, has played out along existing lines. Unless the rupee-dollar peg shifts significantly, the yellow metal should see support at the Rs26,850 level this week. Market internals indicate a 50% increase in turnover and a 14% increase in open interest.

Nickel has rallied to log week-on-week gains for the third week in a row. The Rs1,000 level was advocated as a near term pressure point, but wass not tested. I am of the view that the bulls should lock in part profits on the counter near the Rs1,000 mark. Market internals indicate a 9% decrease in turnover and a 19% decrease in open interest.

Silver was unable to close above the Rs58,500 hurdle advocated last week, which remains the nemesis of the bulls. The strengthening rupee set the tone and tenor for selling, which may spill over to the early part of this week. Purchases may be deferred for now. Market internals indicate a 28% increase in turnover and a 47% increase in open interest.

Zinc has fallen along expected lines as last week I indicated a spinning top coupled with a bearish channel resistance that would cap the upsides. As long as the price stays below the Rs99 level, the outlook will remain weak for a few sessions. Avoid fresh buys for now. Market internals indicate a 17% increase in turnover and a 50% increase in open interest.

Energy
Crude oil has seen a forceful correction as the weekly western bar charts indicate a bearish outside pattern that has significant ramifications in the near term for the bulls. The spinning top pattern warning pointed out last week played out as the bulls failed to provide follow-up support. Till the price stays above the Rs5,275 level for a few sessions, avoid fresh buying. Market internals indicate an 18% increase in turnover and a 27% decrease in open interest.

Natural gas fell through the support advocated at the Rs170 level and closed below it convincingly. That confirms the near term trend as bearish and bulls should avoid fresh longs as long as the price stays below the channel bottom. Market internals indicate a 1% decrease in turnover and a 5% increase in open interest.

The columnist is the author ofA Traders 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