A consistent trade above Rs 3,650 levels for crude oil will indicate a bullish bias
MUMBAI: The commodity markets were volatile last week as the surprise Fed move on interest rates caused short-term turbulence.
The immediate reaction was a short-term upmove on select base metals as the industrial outlook (at least as a perception) improved and shorts were squeezed. The bullion outlook, too, improved as hedge fund activity was seen driving prices higher. Select agri-commodities spiked higher and the outlook was slightly more upbeat compared with the previous week.
MCX volumes fell 2% and open interest tripped by a similar amount on a week-on-week basis. Turnover gainers were copper, mentha oil, potato, zinc and aluminium. Open interest gainers were natural gas, zinc, refined soya oil and chana.
Agri-commodities
Chana has established Rs 2,100 level as a critical support and as long as this threshold is not violated downwards, the outlook remains optimistic. The upside potential is till Rs 2,365 levels and the market internals indicate a 26% build-up in open interest. That’s bullish and high-risk traders may venture some longs.
Mentha oil was the wild card of the week gone by as the Rs 455 threshold advocated by us as a critical resistance was tested. As long as this threshold is not violated downwards, the potential to rally is above average. Market internals indicate a 111% increase in turnover and 6% decline in open interest. The probability of an upmove is fair and bulls may attempt some longs.
Refined soya oil has seen some profit sales as the Rs 560-565 levels appears to be a support band that maybe tested in coming week/s. As long as the level holds, expect the overall uptrend to remain. Fresh buying is ruled out till a breakout is confirmed. Market internals indicate a 13% decline in turnover and a 25% increase in open interest as bears add shorts on declines.
Metals
Aluminium has been a beneficiary of the Fed decision to cut interest rates and has established the Rs 93 level as support in near/medium term. Breakout past the Rs 100 mark on heavy volumes will be a conclusive buy signal. Should the Fed cut interest rates further, expect even bigger upmoves in the near term. Market internals indicate 1% rise in turnover and a 36% decline in open interest as the January expiry witnesses some unwinding.
Copper has seen a lower weekly close as the higher levels were clearly unsustainable and the Rs 290 level is a major resistance. A decline below Rs 270 levels on a consistent trading basis may see the Rs 252-258 band being tested in the medium term. Like aluminium, this metal will also be interest-rate sensitive in the near term. Market internals indicate an 8% increase in turnover and an 8% decline in open interest.
Gold has seen an “outside” formation as the weekly charts indicate a wide range as compared to the previous week. The Rs 11,100 levels will now become a short-term base as the momentum players book profits at higher levels. Should interest rates be cut further, expect some volatility with a downward bias in the near term, but the overall trend remains upwards. As long as the Rs 11,100 level is defended by the bulls, the outlook remains positive.
Nickel has shown signs of weakness as the bulls have been unable to defend the Rs 1,080 momentum support vigorously. The Rs 1,000 level will be a litmus test for the bulls and any consistent trade below this threshold will imply aggravated weakness. Market internals indicate a 5 % decline in turnover and a 13% decline in open interest.
Silver has seen volatility with a weekly close near it’s resistance level at the Rs 21,350 level. Only a forceful crossover above this threshold on high volumes and open interest build up will indicate fresh bullishness. Till then, bulls should hold their horses and sit on the fence.
Zinc has shown fresh signs of weakness as the 85 level is now established as a short term support for the bulls to watch and defend. Should this level be violated on high volumes and increased open interest, expect fresh bouts of weakness. Market internals indicate a 7% increase in turnover and a 3% increase in open interest. These are indicators of a fresh short build up.
Energy
Crude oil has shown some profit taking and the Rs 3,400 level will be a critical near term support as a double bottom has been formed at this juncture. Any forceful decline from this threshold will imply fresh weakness and bull unwinding. A consistent trade above Rs 3,650 levels will indicate a bullish bias as a breakout above the congestion band will have been signalled. Market internals indicate 15% fall in turnover and 13% fall in open interest.
Natural gas has been consolidating with a bearish bias as the end of winter typically witnesses unwinding of some longs. The Rs 335-340 level remains a major resistance and as long as the bulls are unable to push prices beyond these parameters, the outlook will remain nervous. The Rs 295 level will be a short term support to watch as trade below this threshold with high volumes will see fresh declines. Market internals indicate a 28% fall in turnover and 198% raise in open interest.
Mandatory disclosure: The analyst has no exposure to any commodity recommended above.
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