Base metals may witness profit sales, so add longs cautiously

The markets witnessed a lower turnover week as trader participation eased marginally. The MCX recorded a 16% decline in turnover and an 8% increase in open interest on a week-on-week basis. This was due to the preference of the traders to rollover their trades to the next trading session rather than square up intraday. On balance, it indicates a higher risk appetite in the markets. Base metals continued to extend
their upthrust which commenced a fortnight ago, along expected lines. Bullion and energy were a close second as the economic data from the overseas markets was encouraging. The US non-strategic commercial crude inventory was higher by 4.10 million barrels to hit the 341.60 million barrel mark. I advise caution in fresh trades on base metals, which may witness some profit sales.

Agri-commodities
Chana has seen an optimistic week as the bulls have attempted to lift values. However, the Rs 2,225 hurdle remains inviolate and unless this is overcome convincingly, the pressure of profit sales will persist. Consider fresh long trades above the Rs 2,225 levels only. Market internals indicate 22% increase in turnover and 72% increase in open interest.

Mentha oil is showing signs of an upmove which may test the Rs 625 levels if volumes and open interest rally with prices. So far, the upthrust was on poor volumes, which implies bear covering was responsible for the uptick. Market internals indicate 59% decline in turnover and 6% increase in open interest.

Potato is showing signs of strength and the Rs 555 level will be a floor support for now. Expect the upthrust to continue as long as bulls keep the counter above the Rs 610 levels. Market internals indicate 31% increase in turnover and 5% increase in open interest.

Refined soya oil is moving within a narrow band of
Rs 450-465 levels and a fresh rally will require a breakout
past the Rs 465 mark with high volumes and open interest expansion. Avoid fresh purchases unless such breakout. Expect weakness below the Rs 450 mark. Market internals indicate 18% decline in turnover and 1% decline in open interest.

Metals
Aluminium witnessed gains last week with higher volumes in the prompt month series, and that is a positive indicator. The recent decline from the Rs 108 levels was on lower volumes, which implies routine corrections. The counter has broken out of a bearish channel and that is a potential flag if the bulls defend the Rs 98 levels convincingly. Market internals indicate 15% decline in overall turnover and 24% increase in open interest.

Copper has led the rally in the base metals pack and is likely to witness some pressure at the Rs 354 levels, is a swing reversal top for short- and medium-term players. Avoid fresh longs unless this hurdle is taken out convincingly, but let existing longs ride. Market internals indicate 18% decline in turnover and 26% increase in open interest as bulls preferred to buy and hold.

Gold is showing signs of a feeble rally that will gain momentum if and when the Rs 17,300 level is overcome on a sustained closing basis. The probability of overcoming the previous top will then improve, subject to the rupee-dollar peg. Watch the Rs 16,550 level for a short-term floor below which, momentum may slacken. Market internals indicate 20% decline in turnover and % increase in open interest.

Nickel witnessed the unfolding of twin bullish patterns, which has fulfilled the primary target of Rs 1,050 and is gearing up to test higher levels. Should the bulls manage to keep the counter consistently above the Rs 1,025 levels with higher volumes and open interest, expect positive surprises on the long side. Except a deceleration if the counter declines below the Rs 968 levels. Market internals indicate 23% increase in turnover and 26% increase in open interest.

Silver has seen a rally higher than gold in percentage terms. As long as the metal stays above the Rs 27,650 levels in the coming weeks, expect the probability of it overcoming the Rs 29,000 mark as fairly good. Declines should not extend beyond the Rs 25,800 levels or the upward momentum may reverse gears. Market internals indicate 21% decline in turnover and 5% decline in open interest.

Zinc has witnessed an inside formation as the weekly range was within the previous week’s range and turnover was insipid. The counter must overcome the Rs 110 hurdle to witness another upthrust, that too on higher volumes and open interest expansion. The Rs 100 level should now be a stop loss on existing longs. Market internals indicate 6% decline in turnover and 30% increase in open interest.

Energy
Crude oil has rallied in spite of the rise in inventory in the US non-strategic reserves. This raises the probability of the Rs 3,810 hurdle being overcome with higher volumes and open interest expansion, though the expiry of the March series may prove to be a short-term hurdle. Traders may open longs in the April series if and only if the Rs 3,810 levels (add cost of carry) is overcome forcefully. Market internals indicate 15% decline in turnover and 31% increase in open interest.

Natural gas is showing a lower tops and bottoms formation on the charts and the likelihood of the commodity deriving support at the Rs 195 levels is fair. Traders may watch this level for signs of support and then buy. Avoid the temptation to bargain hunt on declines should the Rs 195 floor be violated. Market internals indicate 6% decline in turnover and 36% increase in open interest as bears add to positions.

(The columnist is the author of A Traders Guide to Indian
Commodity Markets and invites feedback at vijay@BSPLindia.com or (022) 23438482)