Gold has violated bullish channel support, avoid bargain-hunting

The markets witnessed a lower turnover week as the traders were in a festive mood. The week-on-week market-wide turnover on the MCX fell by 15%. The market-wide open interest fell by 11%. The MCX turnover gainers during the week were cardamom, cotton and sugar. The open interest gainers were cardamom, gold, potato, silver and sugar.

At 327.5 million barrels, the US non strategic petroleum reserves were higher by 3.9 million barrels. The profit sales on bullion were triggered by the better-than-expected economic data from the US. But for the weakening `and possibility of institutional buying in bullion, rates in Indian commodity exchanges would have fallen sharply.

Traders are focusing on the agri-commodity mart, as the turnover and open interest gainers above indicate. This week is likely to see muted participation, at least in the first few sessions due to the New Year holiday spirit.

Agri commodities
Mentha Oil: Market internals indicate a 3 % decrease in turnover and a 12 % decrease in open interest.

Potato has seen a very narrow trading range as the trader participation plunged and the weekly candle chart indicated a doji cross. These are indications of a consolidation on the near-term horizon. Fresh rallies are possible only above the Rs655 levels.

Market internals indicate a 58% decrease in turnover and a 4% increase in open interest.

Sugar M Kol has indicated a gravestone doji on the weekly chart which indicates an abortive attempt by the bulls to push prices higher. If the weekly low of `2874 is breached forcefully, and open interest rises, expect a fresh onslaught by the bears in the near term. Market internals indicate a 33% increase in turnover and a 47% increase in open interest.

Metals
Aluminium has managed to rally on a week-on-week
basis as the improved economic data from the US, coupled with weakening Rs, buoyed prices. The fall in the market internals can be attributed to the expiry of the December series and the festive season. The Rs110 level remains a nemesis of the bulls and must be overcome if a sustained rally is to be seen. Market internals indicate a 55% decrease in turnover and a 51% decrease in open interest.

Copper managed to bounce off its intra-week lows but still lost ground as the bulls lacked the buying conviction to sustain a strong upthrust. The price remains below a bearish trendline and must break out above the Rs415 levels to get into bullish territory.

Cautious players should await a confirmed breakout before buying afresh. Market internals indicate a 41% decrease in turnover and a 12% decrease in open interest.

Gold is appearing distinctly weak as the Rs26850 level advocated last week was breached briefly but closed above that threshold.

The price has also violated a bullish channel support — and that is an indication of some more weakness in the absolute near term. Avoid bargain- hunting for now. Fresh longs are advised above the `28250 levels on a sustained closing basis only. Market internals indicate a 3% decrease in turnover and a 3% increase in open interest.

Silver has plunged faster than gold as the bulls unwound positions even as bears built up fresh shorts. The Rs51000 support anticipated last week was breached; and the Rs48500 level should be treated as a fresh swing low. And till the same is violated, aggressive risk-takers may attempt to buy on dips with a stop-loss at this level for quick profit-taking opportunities. Market internals indicate a 1% decrease in turnover and a 4% increase in open interest.

Zinc has indicated a bullish doji pattern as the bulls supported the counter at lower levels and managed a positive close on a week-on-week basis. The `95 level maybe treated as a support; and a fresh buy mandate is likely only after the price stays above the Rs102 levels. Market internals indicate a 34% decrease in turnover and a 41% decrease in open interest.

Energy
Crude oil has eased off its weekly highs as the threat from Iran’s blockade of the Gulf of Hormuz proved to be short-lived. Also noteworthy is the fact that the Rs5350 level advocated as a threshold for the bulls to overcome, remained inviolate on a closing basis. The weekly candle charts indicate an inverted hammer which is a sign of pressure at higher levels. A fresh rally is likely above a consistent close over the Rs5350 levels. Market internals indicate a 31 % decrease in turnover and a 7 % decrease in open interest.

Natural gas has continued to decline as the bulls, as everyone had expected, failed to offer support at lower levels. As advocated in recent weeks, the commodity has violated a long-term channel support, which has bearish implications for the near term. Avoid bargain-buying for now. Market internals indicate a 23% decrease in turnover and a 10% decrease in open interest.

The writer is the author of A Traders Guide to Indian Commodity Markets and can be reached at vijay@BSPLindia.com
Fair disclosure: The analyst has no exposure to any of the commodities recommended above