Column

The markets witnessed a lower turnover week inspite of a lower base effect as the turnover on the Multi-Commodity Exchange (MCX) declined 2% on a week-on-week basis. Traders preferred a buy-and-hold strategy instead as the outlook was relatively volatile. The market-wide open interest on the MCX rose 10%. Base metals continued to remain under pressure as the flight to safety (of bullion) extended and the US dollar stabilised against the global basket.

The turnover gainers last week were cardamom, chana, crude oil, crude palm oil, gold, mentha oil, natural gas, nickel, platinum, refined soya oil and tin. Open interest gainers were almonds, cardamom, chana, crude palm oil, crude oil, gold, mentha oil, natural gas, nickel, platinum and zinc. The US non-strategic crude inventory rose by 1.80 million barrels to the 337.7 million barrels mark, thereby triggering profit sales on the counter. The US pushed 23 more oil rigs this week to hunt for oil, triggering a profit-taking bias on forward contracts.

Agri-commodities
Chana has reversed its previous week’s gains as profit sales and unwinding ahead of the November series has capped gains. The commodity needs to trade above the Rs 2,575 levels with higher volumes and open interest expansion to turn bullish again. Market internals indicate a 15% increase in turnover and a 13% increase in open interest as bears pressed sales.

Mentha oil has logged a highest weekly close after April 24, 2009 as the winter season demand kept the buoyancy intact. The momentum is likely to persist though the probability of profit sales cannot be ruled out after a big weekly move. The jump in turnover is a positive indicator and existing longs may be held. Market internals indicate a 224% increase in turnover and a 31% increase in open interest as the bulls added longs.
Refined soya oil has declined as the rupee strengthened vis-a-vis the US dollar and the crop was expected to revive partially. With the Rs 455 support violated, the outlook will be negative as long as this threshold is not overcome forcefully. Market internals indicate a 3% increase in turnover and an 8% decline in open interest.

Metals
Aluminium has shown resilience as the white metal has managed to gain on a week-on-week basis. The metal is trading marginally above the bearish channel top and a sustained trade above the Rs 92 level will be needed to kick off a sustained upthrust. The Rs 87 level will be a near term support to watch. Market internals indicate a 12% decline in turnover and an 8% decline in open interest.

Copper declined marginally during the week as the red metal has approached the support provided by a steep bullish trend line and the decline has been on lower volumes. The angle of the trend line is steep and the probability of a violation is fair if the weakness persists. The US housing/consumer data will be crucial in determining the near-term outlook on this metal. Watch the Rs 295 support this week. Market internals indicate a 16% decline in turnover and a 3% decline in open interest as bulls surrendered longs.

Gold hit yet another high as the flight to safety continued unabated. The perceived weakness in the greenback remained omnipresent in the global financial markets and kept pushing the bullion higher. The Rs 16,500 level may be treated as a swing low support, below which the momentum players may book profits on longs. Market internals indicate a 5% increase in turnover and a 2% increase in open interest.

Nickel has recorded a steep decline with higher volumes and open interest expansion as bears pressed fresh sales. The probability of fresh declines cannot be ruled out till the price rallies past the Rs 785-795 band with forceful volumes and open interest expansion. Market internals indicate a 23% increase in turnover and a 44% increase in open interest on fresh bear sales.

Silver has witnessed an “inside” formation as the weekly range has been within the previous week’s range and that indicates a probability of a bigger move in the offing. A forceful breakout past the Rs 27,750 levels forcefully will be a trigger for a fresh upthrust and needs to be awaited before fresh buying may be resorted to. Market internals indicate a 4% decline in turnover and a 4% decline in open interest as the prompt month series draws to a close.

Zinc has seen three consecutive weeks of declines as the base metals pack underwent unwinding by bulls. The psychological support at the Rs 100 level has held so far and will need watching as the bears are likely to emerge with force once this threshold is violated on a sustained closing basis. The Rs 102 level will be a trend determinator for the bulls above which fresh buying may be seen. Market internals indicate a 13% decline in turnover and an 8% increase in open interest.

Energy
Crude oil has declined to a 4-week low as the higher US inventory coupled with higher exploration efforts are exerting a downward bias on the counter. Should declines persist, the Rs 3,450 level may be likely and much will depend on the US dollar levels. Bulls may buy only above the Rs 3,650 levels, till then, wait and watch. Market internals indicate a 2% increase in turnover and a 6% increase in open interest as bears pressed shorts.
Natural gas has witnessed a lowest weekly close after September 26, 2009, which is a telling indicator of weakness on this counter. The decline has been in tandem with crude oil and may persist as the expiry of the prompt month contract draws closer. Watch the Rs 189 level keenly for near-term support. Market internals indicate a 3% increase in turnover and a 36% increase in open interest as fresh shorts were added.

The writer 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 exposure to Nickel futures.