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Select metals may see upthrust

The markets witnessed a late surge in values as bullion flared up on the back of fresh uncertainty in the US financial markets. Base metals moved up feebly as the dollar eased marginally against the global currency basket. The turnover was up 11% week-on-week on the MCX and the market-wide open interest rallied 5%. The turnover stars were aluminium, crude oil, gold, mentha oil, natural gas, silver and zinc. Open interest gainers were aluminium, copper, crude oil, gold, mentha oil and nickel. This week may see a spillover of the bullish sentiments in bullion, provided the US dollar remains subdued. Select base metals appear poised for an upthrust and need to be watched.
Agri commodities

Mentha oil has witnessed a much needed boost as the Rs 446 level will be the immediate floor for the commodity this week. Volumes have seen a burst and open interest suggests a fresh build-up of long positions. Adventurous traders with higher than average risk appetite may buy small lots and expect the commodity to attempt an upmove to the Rs 490-500 levels. Market internals indicate a 116% increase in turnover and a 5% increase in open interest.

Metals
Aluminium has recorded the lowest ever weekly and monthly closing after listing on the MCX. Coming on the back of higher volumes and open interest, these indicate a short sale build-up on advances. While a technical bounce may not be ruled out, upsides are likely to encounter a selling bias as short-term bulls trapped at higher levels rush for the exit door. Market internals indicate a 75% increase in turnover and a 32% increase in open interest.

Copper saw an extended weakness as demand contraction concerns dampened sentiments. The metal is now ruling near October 2005 levels and only a positive trigger from the global economy can revive sentiments. The Rs 165 support is an important one and needs watching. Market internals indicate a 12% decline in turnover and a 2% increase in open interest.

Gold has surged as the combination of a weak rupee and a rally in the overseas markets has resulted in a short squeeze, driving prices higher. While some profit sales and/or consolidation cannot be ruled out completely, the undertone is likely to remain optimistic. Bulls with patience may buy on declines. Market internals indicate a 22% increase in turnover and a 24% increase in open interest as fresh longs were added.

Nickel has seen weakness pervade the sentiments as higher levels were met with fresh sales. A re-test of the Rs 460-465 band cannot be ruled out in the near term. Buying is advised above the Rs 550 levels only, that too if the upmove is with high volumes and open interest. Market internals indicate a 28% decline in turnover and a 9% increase in open interest.

Silver has shown relative weakness compared with gold as the Rs 16,000 floor was violated briefly, before a price revival. As long as the metal stays above Rs 16,550, the possibility of an upmove to the Rs 16,850-17,200 levels cannot be ruled out. A decline below the Rs 16,000 levels will see fresh weakness. Market internals indicate a 2% increase in turnover and a 13% decline in open interest.

Zinc holds promise in the base metals segment. Should there be any revival in sentiments, zinc is likely to be the first beneficiary, provided the Rs 60.50 hurdle is overcome on high volumes and open interest expansion. Traders are advised to buy after a confirmed breakout is witnessed. Market internals indicate a 2% increase in turnover and a 6% decline in open interest as short-term players unwound longs on rallies.

Energy
Crude oil has fallen to the May 2007 lows and is likely to remain under pressure as long as the price remains below the Rs 2,750 levels. The Rs 2,300 floor is likely to be a major floor, which has proved to be an empirical inflection point after Saddam Hussein’s execution. Buying should be contemplated after a swing reversal occurs on high volumes and open interest expansion. Market internals indicate a 11% increase in turnover and a 80% increase in open interest.

Natural gas has established a support at the Rs 310 levels, which should not be violated if any upmove is to sustain itself. The winter months do see some demand surge for this commodity and bulls are hopeful for now. A consistent trade above the Rs 350 threshold will lend weight to the upmove, provided it is with high volumes. Market internals indicate 25% increase in turnover and a 27% decline in open interest.

The author is a Mumbai-based investment consultant