Crude may break out at Rs3,850 if rise is backed by high volume

The markets witnessed a lower turnover week due to a holiday on Friday. The MCX logged a 24% drop in weekly volumes and a 5% decline in market-wide open interest. The turnover gainers during the week were nickel, steel (GZB) and tin.

Open interest gainers were almond, cardamom, chana, copper, crude oil, mentha oil, potato, refined soya oil, steel (GZB) and wheat. Traders focused on industrials as the economic/ employment data from the US improved. The subdued dollar also added to the buoyancy. The US non-strategic crude oil inventory rose by 2.9 million barrels to hit the 354.2 million barrel mark.

The buoyancy in oil prices were partly due to hopes of a recovery but primarily due to the temporary contraction in global refining capacity by as much as 20%, due to maintenance shutdowns. Bullion remained in consolidation mode with silver outperforming gold in the near term.

Agri-commodities
Chana has seen an extension of the previous week’s bullishness as the prices rose sharply with increased open interest (OI). That indicates a buy-and-hold view of the bulls. Cyclically, the second calendar quarter has been a positive one for this commodity as demand-supply forces favour the bulls. Market internals indicate a 46% decline in turnover and a 34% increase in open interest.

Mentha oil has confirmed a bullish pattern and needs to close above the Rs 630 levels consistently to trigger a fresh upthrust. The rising open interest is indicating optimism and follow-up buying will be required to maintain the tempo. All existing longs maybe held with a stop loss at the Rs 630 levels. Fresh buying is acceptable as long as the overall market sentiments are bullish. Market internals indicate an 11% decline in turnover and a 1% increase in open interest.

Potato has seen a mild upthrust but remains way below the Rs 635 inflection point, which is required to kick start a fresh upmove. Follow-up buying must be awaited before fresh buys are contemplated. Market internals indicate a 43% decline in turnover and a 4% rise in open interest.

Refined soya oil remains under pressure and the recent bottom at the Rs 440 levels will act as a near-term support to watch out for. Should the bears manage to smash past this support with higher volumes and open interest expansion, the counter can see fresh declines. Market internals indicate a 21% decline in turnover and a 18% increase in open interest.

Metals
Aluminium has seen a resurgence as the bullish channel support has held for now. The Rs 103 resistance has been overcome and as long as the bulls manage a close above this hurdle, the outlook remains optimistic. Hold longs. Market internals indicate a 4% decline in turnover and a 35% decline in open interest bulls unwound on rallies.

Copper has staged a smart recover, leading the base metals space. The double-top resistance mentioned last week has been overcome forcefully and will be a support area to watch out for in the coming days. Any forceful close below this floor will see weakness in the near term. Market internals indicate a 15% decline in turnover and a 6% increase in open interest.

Gold has seen a truncated weekly range. The weekly chart shows an inside formation as the prompt monthly expiry and risk expansion saw safe-haven buying ease off. Watch the Rs 16,000 support keenly for signs of momentum support. Market internals indicate a 32% decline in turnover and a 26% decline in open interest due to expiry considerations.

Nickel has been advocated as a bullish counter in this column and has lived up to the expectations of the bulls, if the open interest expansion in the recent weeks is anything to go by. Demand from steel producers and hopes of an economic recovery have seen the metal leading the rally in base metals from the front. Longs must be protected with a stop-loss at the Rs 1,060 levels on a closing basis. Market internals indicate a 5% increase in turnover and a 33% decline in open interest.

Silver has been showing higher relative strength as per my expectations. Should follow-up buying emerge at lower levels, a fresh upthrust is not ruled out. Bulls may hold longs. Market internals indicate a 38% dip in turnover and 4% dip in open interest.

Zinc has indicated an upmove in tandem with the base metals space. The Rs 110 level will be a resistance to watch out for and a breakout above this level will be a fresh buy trigger. Watch the turnover and open interest on this breakout and levels of trader enthusiasm on the breakout. Market internals indicate a 8% decline in turnover and a 17% decline in open interest.

Energy
Crude oil has recorded a bullish week as the maintenance shutdown of refining plants in Asia has knocked out about a fifth of global refining capacity. The rise in US non-strategic reserves seems not to have impacted bullish sentiments. The weekly chart indicates a rising ‘tops and bottoms’ formation in place with a breakout confirmation at Rs 3,850, provided the upthrust is on higher volumes and open interest addition. Market internals indicate a 32% fall in turnover and a 9% increase in open interest as bulls enhanced exposure.

Natural gas has witnessed a buying support emerging at lower levels as the closing is above the opening and the lower tops and bottoms formation has been in place for two months. As long as the Rs 175 level holds, longs maybe initiated by the high risk appetite players in measured lots. Market internals indicate a 1% decline in turnover and a 8% decline in open interest.

The columnist is the author of A Traders Guide to Indian
Commodity Markets and invites feedback at vijay@BSPLindia.com or (022) 23438482.

Mandatory disclosure: The analyst has no exposure to any commodities recommended above.