Buying seen in base metals at lower levels

The markets witnessed a higher turnover week as the traders displayed. The week-on-week market wide turnover on the MCX rose 8%. The market wide open interest fell 8%. The MCX turnover gainers during the week were aluminium, cardamom, copper, gold, lead, mentha oil, natural gas, nickel, refined soya oil, silver, sugar and zinc. The open interest gainers were cardamom, crude oil, mentha oil, nickel, potato and refined soya oil. The US non-strategic petroleum reserves were higher by 0.6 million barrels, at the 370.9 million barrel mark. The price action in base metals is indicating some buying support emerging at lower levels and higher risk appetite traders may attempt small scale bargain buying.

Agri commodities
Mentha oil has continued on its southward trajectory as the upthrust witnessed recently was a corrective pullback alone. The possibility of the price testing the Rs800 - Rs825 band should not be ruled out in the near / medium term. Market internals indicate a 37% increase in turnover and a 13% increase in open interest.

Potato has consolidated with a bearish bias on the weekly charts and the Rs500 mark is likely to prove to be a near term support in case of extended declines. Avoid longs as the outlook remains under pressure. Market internals indicate a 31% decrease in turnover and a 3% increase in open interest.

Refined soya oil has surged higher for the third week in a row as the food prices hardened globally and the weak INR added to the local cost vis-a-vis the international prices. The upward trajectory is likely to persist in the near term and existing longs if any, maybe held for now. Market internals indicate a 26% increase in turnover and a 33% increase in open interest.

Metals
Aluminium has exhibited significant strength as the bulls roared back with vengeance. The weekly candle chart indicates a bullish daki pattern which has positive implications in the near term. If the bulls manage to defend the Rs116 level in case of declines, the outlook will strengthen further. Market internals indicate a 15% increase in turnover and a 14% decrease in open interest.

Copper has logged the third consecutive week of gains as the bulls persisted with follow up buying support. The international markets have seen significant buying interest and the weekly charts indicate a possible breakout from a falling channel.

Trading consistently above the Rs420 levels will confirm a breakout of that channel. Maintain a positive bias in the near term. Market internals indicate a 12% increase in turnover and a 4% decrease in open interest.

Gold has rallied along expected lines and the impeding expiry may witness a mild short squeeze that will cushion the prices in case of profit sales, at least in the first half of the week. The Rs22,800 level seems to be within sight as the bulls push prices higher in a measured manner. Nurse a long bias for now.  Market internals indicate a 1% increase in turnover and a 14% decrease in open interest.

Nickel has been a weak counter in relative comparison to it’s base metals peers. The Rs1010 mark witnessed buying support as advocated in the previous week. The level is not only near a psychological round figure mark but also a retracement support on the weekly charts. Higher risk appetite players may attempt fresh buys near the Rs1000 - Rs1010 band in case of fresh declines in anticipation of a pullback in the short / medium term. Market internals indicate a 29% increase in turnover and a 10% increase in open interest.

Silver has risen as was expected in the last two columns and the ¤50,000 level will prove to be a floor support for the bulls. Once the bulls overcome the ¤60,000 mark and manage to keep the price sustainably above this threshold, the white metal will return to its winning ways and a short squeeze maybe expected.
Nurse a long bias and initiate longs on dips in the mini / micro contracts. Market internals indicate a 9% increase in turnover and an 8% decrease in open interest.

Zinc has closed at its four-week highs and that is a sign of strength in the near term. As long as the bulls defend the ¤98 levels in case of declines on a closing basis, the outlook will remain positive for the bulls. Maintain a long bias on this counter for now. Market internals indicate a 25% increase in turnover and a 12% decrease in open interest.

Energy
Crude oil has witnessed the third consecutive week of gains, however, the steep decline recorded in the week ended May 07, 2011 remains a major range that the commodity needs to overcome if the narrow price movements are to end. The bulls will gain substantial traction as and when the price stays above the ¤4,700 levels sustain ably. Hold a long bias for now. Market internals indicate a 1% decrease in turnover and a 12% increase in open interest.

Natural gas is exhibiting signs of strength as the E212 level will be a last mile hurdle for the momentum players. Once the price overcomes this hurdle forcefully on higher volumes and open interest expansion, the outlook will turn distinctly bullish. Nurse a long bias on the counter in the near term. Market internals indicate a 39% increase in turnover and a 15% decrease in open interest.

The columnist is the author of A Traders Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com or 9323720291.
Disclosure: The analyst has no exposure to any commodities recommended above