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The markets witnessed a choppy week as far as bullion and base metals were concerned. Energy prices declined in line with international prices and increase in the US inventory.

Base metals witnessed a choppy week as some bellwether counters, such as copper and zinc, exhibited flashes of strength but lack of buying conviction at higher levels.

Bullion was volatile with an optimistic bias as the US dollar was weak vis-a-vis euro.
Though inflation and crude prices are on the wane, firm bullion prices indicate a risk aversion and flight to safety in the global financial markets.

This week may see an extension of the choppiness as the expiry of February energy contracts will see fresh positions and trends emerging.

Select base metals are likely to see expiry related unwinding as well.

Agri-commodities
Chana closed at three-weekly lows. The Rs 2,285 threshold will be a short-term trend determinator and bulls are likely to have an upper hand only above this threshold. Market internals indicate a 25% rise in open interest as fresh shorts were seen.

Mentha oil is sliding towards the Rs 505 level, which is the make-or-break support. Should there be a forceful decline below this threshold, expect a rapid fall. Market internals indicate a 28% decline in turnover and a 6% increase in open interest.

Potato shows a consolidation as the Rs 625 hurdle has proved to be a formidable one for the bulls to overcome. In a declining phase, the Rs 550 mark may be re-tested if the Rs 580 temporary floor is violated. Market internals indicate a 58% rise in turnover and a 32% increase in open interest.

Refined soya oil needs to trade above the Rs 480 levels for bullishness to return. Bulls should buy only after a conclusive breakout above this mark.

Metals
Aluminium has reversed almost all its previous gains as weak economic data in the US dampened the anticipated demand for the white metal. The Rs 64 level will need watching as the bears are likely to grab the initiative from the bulls below this threshold.

Market internals indicate a 22% decline in turnover and a 1% decline in open interest.
Copper has failed to sustain buying momentum above the Rs 175 level and closed with mild losses. Lower turnover indicates a lack of panic sales and the metal is likely to be a fairly accurate barometer of industrial activity. Should the stimulus package in the US be well-received, expect prices to perk up. Bullish activity is likely to pick up above the Rs 170 levels, if accompanied by higher volumes. Market internals indicate a 21% decline in turnover and an 8% increase in open interest.

Gold is now into bullish territory.As long as the yellow metal remains above the Rs 14,100 levels, momentum players need to remain long and let their profits run. With the February expiry put behind them, the bulls are likely to tighten their grip on the markets.

If the US stimulus package is well accepted by investors, there may be some profit sales. Market internals indicate a 1% decline in the turnover and a 6% increase in open interest.

Nickel is poised to test the erstwhile support of Rs 440 if the weakness in the base metals persists. A consistent trade below the psychological mark of Rs 500 will be a key trigger. Avoid going long till the bulls manage to clear the Rs 565-575 hurdle.

Market internals indicate a 10% increase in turnover and a 138% increase in open interest.

Silver needs to trade consistently above the Rs 21,500 levels if the bulls are to return in force. The near ‘V-shaped’ recovery on this counter may fizzle out due to profit sales if the metal slides below this critical level. While a short period of consolidation is along routine lines, the volumes should be thin on declines and open interest should hold steady. Watch the movement of gold to gauge the mood on this commodity as well.

Market internals indicate an 8% increase in turnover and a 17% decline in open interest due to some profit taking.

Zinc has slid in tandem with its peers and momentum players need to watch the Rs 52 level carefully. A forceful decline below this threshold will see a fresh round of weakness leading it to test the Rs 50 mark again. This counter may see increased choppiness due to the compressed intra-week range for a fortnight in a row. Market internals indicate a 19% decline in turnover and a 17% increase in open interest, indicators of fresh short sale build-up.

Energy
Certified emission reduction (CER) continued to decline for the sixth week in a row. The sentiment dampener is the ongoing recession, which is anticipated to discount the premium on these certificates. Bulls are advised to avoid this counter for now. Market internals indicate a 54% decline in the turnover and an 83% dip in open interest.

Crude oil has made a double bottom at the Rs 1,625 levels (the previous one being during the week ended January 17, 2009). Unless this bottom is violated, shorts need to be avoided. Bulls are likely to have an upper hand above the Rs 2,075 levels on a consistent basis only. Await a conclusive upthrust before adding on to longs.

Natural gas has seen a near total reversal of the prior week’s strength and a re-test of the Rs 215 levels. A consistent fall below the Rs 210 levels with higher turnover and an open interest expansion will see a fresh round of weakness. High-risk appetite players may then initiate short sales. Market internals indicate a 20% fall in turnover and a 45% rise in open interest.

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