Column

Don’t short natural gas, as weather’s chilly in the US

The commodity markets witnessed hectic activity as a slew of numbers hit the players. Crude oil created a new record and pushed bullion higher in tandem. Select agri-commodities ran into profit sales and gave up recent gains.

The turnover was higher as the MCX recorded a 14% jump on a week-on-week basis. Turnover gainers were aluminium, crude oil, gold, silver, potato, natural gas and refined soya oil. Open interest gainers were natural gas and zinc. Base metals extended their rally in spite of negative economic data and that calls for caution as far as fresh aggressive long positions are concerned.

Agri-commodities
Chana retraced to a fortnightly support at the 2,700 level before closing above the threshold. The commodity may see some more volatility, as agri-commodities are under the profit-selling hammer off late. Market internals indicate 8% decline in open interest, indicating bull unwinding.

Mentha oil is continuing on its downward trajectory since five quarters. The 415 level is the immediate support and the 455-462 band is the immediate resistance. The lower tops and bottoms formation indicate a strategy of selling into advances. Market internals indicate 13% decline in turnover and 5% increase in open interest, indicating fresh shorts being built up.

Ref soya oil succumbed to aggressive profit-taking and saw sharp declines in the latter half of the week. Fresh longs have proved to be detrimental and bottom fishing on this counter is still a hazardous proposition. Market internals indicate 75% increase in turnover and 2% increase in open interest, indicating fresh short sales.

Metals
Aluminium has seen spectacular appreciation after breaking through the 104 resistance. It is now approaching the 132-134 congestion mark, where profit sales are likely to emerge. The level of ‘commitment levels’ is higher as compared to the bubble of May 2006, but avoid fresh purchases anyway. Market internals indicate 22% increase in turnover and 2% increase in open interest.

Copper broke through its immediate resistance, as decisive trade above the 344 level roped back buyers. The metal closed above this threshold. The outlook on the charts seems to indicate a slight ‘overbought’ reading, but the economic data emanating from the US indicates bearishness. The 354-358 band will be a resistance to watch in the coming sessions. Market internals indicate 9 % decline in turnover and 8% decline in open interest.

Gold has seen a major upmove in recent weeks, in tandem with crude oil, and as long as oil prices stay firm, a major crash in bullion may be ruled out. However, there is a possibility of profit sales.

Prices have consolidated after last Thursday. The subsequent bars on the charts are “inside” patterns (compressed intraday range), which indicate a bigger move in the offing. Market internals indicate 14% increase in turnover and 14% decline in open interest, indicating mild profit sales.

Nickel has traded along expected lines and scaled the congestion area of 1,375. But for prices to rise further, the commodity must trade upward with forceful volumes and open interest addition. Profits sales may drag prices to the 1,290-1,305 levels. Market internals indicate an unchanged scenario over the previous week, indicating a tepid response to the rise in prices.

Silver has witnessed profit selling on advances in tandem with gold. The trading range on Friday and Saturday has made inside patterns, as the price range has shrunk. Expect a bigger move, which will be indicated by a breakout past the weekly high on forceful volumes. Market internals indicate 25% increase in turnover and 36% decline in open interest.

Zinc has seen sell-offs as the weekly chart indicates a bar reversal (closing value is lower than opening value) with major volume expansion. The 117 level will now be a resistance. Until this resistance is broken, avoid fresh longs. Declines may test the 102-104 band. Market internals indicate 4% decline in turnover and 21% increase in open interest, indicating fresh short sales.

Energy
Crude oil has seen a salutary upmove and the level of commitment shown by the bulls indicates further upsides are in the offing. With Opec unwilling to hike production, the declining US dollar is likely to keep trader interest on this counter alive. The cold wave hitting the US is another bullish factor.

Market internals indicate 17% increase in turnover and 2% increase in open interest. The bulls seem to be enhancing exposure and we recommend a hold on this counter.

Natural gas has scaled to an all-time high (on the MCX) and volume and open interest figures suggest an extension of the bullishness in tandem with crude oil. The cold weather in the US is also a bullish factor, so avoid short selling. Market internals indicate 13% increase in turnover and 39% increase in open interest.

Mandatory disclosure: The analyst has no exposure to anycommodity recommended above
vijay@BSPLindia.com