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This week may see some bear covering on declines

Last week, the markets witnessed a higher turnover as trader participation perked up smartly over the week before. The MCX recorded a 47% increase in volumes on a week-on-week basis and a 20% jump in market-wide open interest. The turnover jumped in CER, copper, crude oil, natural gas, nickel, silver and zinc. The open interest was higher in aluminium, copper, crude oil, natural gas, nickel and zinc. The decline in energy and bullion persisted as the bulls failed to provide support at lower levels. Base metals failed to maintain their head above the water as economic woes clouded the near-term outlook across most counters. This week may witness some bear covering on declines which may cap the declines to an extent. Big ticket buying is ruled out for now.

Agri commodities
Mentha oil has seen continued unwinding of longs as the weekly charts indicate a minor consolidation and resumption of selling. Downsides may see the Rs 460-465 band being tested and the upmove will be taken seriously only if the Rs 530 hurdle is overcome convincingly. Market internals indicate a 35% decline in turnover and a 1% increase in open interest.

Metals
Aluminium has slid lower after a false upmove last week and is headed towards the all important Rs 92 mark. A decline below this threshold with increased volumes and open interest expansion will see a fresh bout of selling at the price towards the Rs 85 levels. Market internals indicate a 7% increase in turnover and a 26% increase in open interest, indicating a fresh short build-up.

Copper ended at its lowest weekly close after the week ended November 5, 2005. The Rs 215-218 band will be a significant resistance on the upside in case of buying / short covering. That the fall has occurred on high volumes makes the outlook even cloudier and unless economic activity picks up, a sustained upthrust may be elusive. Market internals indicate an 83% increase in turnover and a 96% increase in open interest.

Gold ended lower as the de-leveraging continued in global markets. Selling was reported by central banks and cash-strapped players. The Rs 11,175 triple bottom support is likely to be the immediate significant support which may be tested if the 11400 minor support is violated. Upsides are likely to run into selling at the Rs 11,650-11,800 band. Market internals indicate a 29% increase in turnover and a 4% increase in open interest.

Nickel has been unsuccessful in holding above the Rs 655 levels and unless that happens, fresh longs should not be contemplated. The declines may test the Rs 445-450 levels if the decline gains momentum. Market internals indicate a 35% increase in turnover and a 42% increase in open interest. These are indicators of fresh shorts.

Silver failed to overcome the Rs 17,750 levels which is a pre-requisite for a fresh upmove. The Rs 16,000 threshold is likely to be a litmus test for the bulls. Should this level be violated, downsides may accelerate on fresh short sales. Market internals indicate a 47% increase in turnover and a 3% decrease in open interest.

Zinc has ground to a low and the Rs 52 threshold has assumed significance as the commodity has rallied twice from this threshold. The bulls may get a respite only if the price overcomes the Rs 58 mark, that too on higher volumes and open interest expansion. Till then, no fresh buys may be attempted. Market internals indicate a 31% increase in turnover and a 46% increase in open interest.

Energy
Crude oil has tested the Rs 2,900 level as the Rs 3,450 bullish pivot was not overcome as required. The immediate support is at the Rs 2,860 level and declines may even test the Rs 2,725 levels if the rollovers are poor. Upsides will see some unwinding at the Rs 3,400 levels where unwinding is likely to be significant. Market internals indicate an 87% increase in turnover and a 44% increase in open interest, indicating fresh short build-up.

Natural gas is witnessing weakness in tandem with crude oil prices and should the Rs 315 level be violated with force, the Rs 300 level will be the next level to watch out for. A sustained upmove can only be expected above the 350 levels on higher volume activity. Market internals indicate a 119% increase in turnover and a 109% increase in open interest, indicating a fresh short build-up.

Mandatory disclosure: The analyst has exposure to gold futures. The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com