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The market witnessed a tumultuous week as US economic indicators unleashed a wave of selling. The buoyancy in the US equity market resulted in a sharp decline in bullion and silver bore the brunt of the selling.

Base metals witnessed some consolidation and even partial recovery from declines even as short covering-cum-fresh buying was seen. Turnover toppers were aluminium, CER, copper, mentha oil, nickel, silver and zinc. The open interest toppers were mentha oil, nickel, silver and zinc. The market wide turnover on the MCX declined 4% whereas the market-wide open interest gained 12%. Traders are advised to desist from aggression on bullion on the long side in the absolute short term.

Agri-commodities
Mentha oil saw the Rs 510 area being established and activated as support in the absolute short term. A forceful decline below this level will be a sell call for high risk traders. The oriental chart shows an ‘inverted hammer’ that promises a higher degree of volatility this week. Market internals indicate 62% increase in turnover and 1% increase in open interest.

Metals
Aluminium has violated the Rs 103 support and is likely to witness a floor at the Rs 100 level if the selling continues. The closing is at its lowest since the week ended February 2, 2008. Bulls should avoid purchases till the Rs 108 levels are overcome. Market internals indicate 62% increase in turnover and 32% increase in open interest.

Copper witnessed a panic bottom and is now likely to face stiff resistance at the Rs 252 levels. Momentum players may go long only after the Rs 245 level is overcome on high volumes and increased open interest. Market internals indicate 49% increase in turnover and 26% decline in open interest.

Gold saw a violation of the Rs 12500 support on poor volumes. These are indications of bullish unwinding as prices decline ahead of the festive season. Should the price stay below Rs 12500 levels for an extended period of time, the level will become a short term resistance for momentum players. Consider fresh purchases only above the Rs 13100 levels. Market internals indicate 17% decline in turnover and 16% decline in open interest.

Nickel continues to plummet, as the lower tops and bottoms formation remains in force. Upsides are likely to be laboured as the bulls are on the ropes here. Market internals indicate 41% increase in turnover and 4% increase in open interest — indications of a fresh short build up.

Platinum remains lifeless and should be avoided.

Silver below Rs 17650 levels is in the bears’ court and the price/volumes /open interest correlation suggests a bearish build up. The white metal is weaker than gold in the near term and a negative pair trading is seen. Traders are going long on gold and selling silver short. Market internals indicate 8% increase in turnover and a 27% increase in open interest — signs of heavy short sales.

Zinc has seen a steep decline during the week. The counter is likely to test new lows as bears are pressing fresh sales even at these levels. Market internals indicate 63% increase in turnover and 36% increase in open interest.

Energy
CER has almost received a fresh lease of life as traded volumes have perked up. It may be noticed that the increase is on a small base and is therefore, of limited value. Watch the Rs 1250 level: As long as the counter remains above this threshold, the outlook remains positive. Market internals indicate 326% increase in turnover and an unchanged open interest.

Crude oil has turned weak after violating the Rs 3950 support, which will now act as resistance on upmoves. Unless this level is overcome on high volumes, expect the upthrust to be laboured. The US inventory has risen yet again as motorists ease up on consumption. Over 40% of US crude consumption comes from cars. Market internals indicate 11% decline in turnover and 7% decline in open interest.

Natural gas may see a minor support at the Rs 310 levels and as long as this level holds, the bulls may get a reprieve from the selling pressure. The short term outlook is likely to be influenced by crude oil. Avoid aggressive positions. Market internals indicate 39% decline in turnover and 8% decline in open interest.

Mandatory disclosure - The analyst has exposure to gold futures

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com