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It was volatile, but a busy week for markets as the week-on-week volumes spiked higher on the Multi Commodity Exchange.

Turnover rallied 31% and open interest fell 28% as the impeding expiry of select commodities, coupled with higher prices, triggered unwinding.

The sector of the week was clearly bullion and energy was a close second. The volume toppers were aluminium, copper, crude oil, gold, natural gas, nickel, silver and zinc. The open interest gainers were aluminium mentha oil, nickel and zinc.

This week will see bullion remaining in the limelight as the flight-to-safety syndrome extends in the second week. Investors and traders may step up their exposure to bullion.

Agri-commodities
Mentha oil appears to have found a buying support near the Rs 600 level and as long as this floor holds, any spike upwards with high volumes will force a short-squeeze that may test the Rs 635 levels. A forceful crossover above the Rs 635 levels with high volumes will see a sharper upmove. Avoid shorts till the counter sinks below the Rs 600 level. Market internals indicate a 1% decline in turnover and a 6% increase in open interest as fresh longs get built up.

Metals
Aluminium tumbled below the support threshold of Rs 116, and that too with higher volumes, as sellers stepped up pressure. The impeding expiry of the current month series was also a factor and the bulls will have to wait till the commodity trades consistently above the Rs 122 mark before buying afresh. Market internals indicate a 97% increase in turnover and a 36% rise in open interest. The open interest indicates a fresh short build-up.

Copper has failed to sustain at higher levels as bulls lacked a wherewithal to hold their positions on declines. The economic data also acted as a detriment for the bulls. The Rs 332-335 band is a critical resistance for this metal in the coming weeks. Market internals indicate a 12% increase in turnover and a 17% decline in open interest. These are indications of unwinding on upticks.

Gold has displayed record volatility as advances and declines were over decade highs, accompanied by explosive volumes. The bulls had a “can’t go wrong” opportunity last week and the declines are now appearing to be capped. Should oil prices rally and the US dollar weaken, expect another spike upwards. Market internals indicate a 46% increase in turnover and a 39% decline in open interest as short-term bulls unwound longs ahead of the expiry.

Nickel has slumped to a 6-week low as the higher levels coincided with a trendline resistance. The violation of a short-term floor raises the probability of the metal kissing the Rs 750 level in the coming week/s. Market internals indicate a 68% increase in turnover and a 75% increase in open interest, indicating a fresh short build-up.

Platinum has bucked the bullion trend and declined amidst thin volumes. The counter suffers from a chronic lack of depth and liquidity and the price discovery mechanism is still inefficient with high impact costs. Market internals indicate a 73% declines in turnover and a 4% decline in open interest. Avoid the commodity.

Silver has bounced higher in tandem with gold as the Rs 17,650 level is now a short / medium-term support, which has been established and activated. The higher turnover is a positive phenomenon and if the metal trades above the Rs 20,700 level consistently, it will see a short squeeze. Market internals indicate a 18% increase in turnover and a 36% decline in turnover.

Zinc has lumped in tandem with its base metal peers, but on marginally improved volumes. The Rs 76 level needs to be watched by the momentum players and swing traders alike. A forceful decline below this threshold on high volumes will see a further attrition in prices. Market internals indicate a 5% increase in turnover and a 6% rise in open interest — indicating short sales.

Energy
Aviation turbine fuel (ATF) remained dry as no trades were logged. The counter is best avoided.

Certified emission reductions (CERs) has attempted a serious upthrust as the counter scaled a seven-week high. Now, the litmus test for bulls will be the Rs 1,485 level, whichmust be overcome on high volumes if the upthrust is to persist. This counter is also in its infancy with a poor price discovery mechanism, higher impact costs and poor liquidity. Market internals indicate a 37% decline in turnover and a 5% decline in open interest as the upthrust witnessed unwinding. Avoid the counter till volumes pick up.

Crude oil’s correction after a rally following Saddam Hussein’s executionin 2006 is now 50% complete, which indicates a Fibonacci support. The aforesaid support is at Rs 4,300 level, which if violated, will test the Rs 3,850 levels (remote possibility in the near-term). Momentum traders should take note of the Rs 4,525 level, which is a near-term swing support. As long as the commodity remains above this levels, expect bullishness. Market internals indicate a 18% increase in the turnover and a 33% decline in open interest. That indicates abdication by buy-and-hold players and a heightened trader activity.

Natural gas has moved in lock-step with crude oil as the weaker greenback prompted buying and short-covering in one go. The Rs 320 level is an established and activated base for the near / medium term. As long as this base remains inviolate and bulls buy in larger numbers, the possibility of a further upmove remains fair. Market internals indicate a 10% increase in turnover and a 50% decline in open interest due to the impeding expiry and profit sales on advances.

Mandatory disclosure: The analysthas exposure to gold futures recommended above.
He is a Mumbai-based investment consultant and invites feedback at
vijay@BSPLindia.com