Cut down exposure levels to protect capital from undue shocks

The markets witnessed a higher turnover week as the traders displayed aggression on the short side as the economic news deteriorated in the US and Greece. The week on week market wide turnover on MCX rose 13%. The market wide open interest rose 8%. MCX turnover gainers during the week were aluminium, copper, crude oil, crude palm oil, mentha oil, nickel, potato, refined soya oil, silver, sugar and zinc. The open interest gainers were crude oil, crude palm oil, gold, lead, mentha oil, natural gas, nickel, potato, silver and zinc. The US non-strategic petroleum reserves were lower by 3.4 million barrels, at the 365.6 million barrel mark. While safe haven buying maybe seen in bullion, the outlook remains under pressure on the overall market. Traders should cut down exposure levels to protect their capital from undue shocks.

Agri commodities
Mentha oil has encountered support on declines as the weekly candle charts show a hammer formation with a long wick. The bears have clearly covered their shorts. The monsoon season is the “second season” for demand revival for this counter and the downsides maybe calibrated on this counter in the coming weeks. Aggression on the short side must be avoided for now. Market internals indicate 72% increase in turnover and 18% increase in open interest.

Potato is sustaining the decline and the mild increase in open interest seems that the bears are not too enthusiastic to initiate fresh shorts at the current levels. There is a fair possibility of sporadic buying support emerging at the ¤450 levels. Market internals indicate 13% increase in turnover and 4% increase in open interest.

Refined soya oil has seen the rally between April-June accompanied by poor strength and volumes and the unwinding seen since a fortnight is likely to erase those gains with a likely support near the Rs610 levels. Avoid bargain buying for now. Market internals indicate 121% increase in turnover and 38% increase in open interest.

Metals
Aluminium has fallen for the third week in a row and the fall appears to have gained momentum. The bulls are likely to remain on the ropes as long as the price stays below the Rs120 mark. Avoid bargain hunting for now. Market internals indicate 26% increase in turnover and 2% decrease in open interest.
Copper has managed to end the week with net gains but a sustained trade below Rs396 will bring the bears back in the reckoning. Fresh buying is advocated only after Rs420 hurdle is overcome convincingly and even then, buying should be on sparse exposure. Market internals indicate 12% increase in turnover and 20% decrease in open interest.

Gold has managed to close with mild gains as safe haven buying continued on declines. For a sustained upthrust, the bulls must take and keep the price above Rs22,850 levels on higher volumes and open interest expansion. A dip below the Rs2,000 level will indicate profit taking. Market internals indicate 14% increase in turnover and 11% increase in open interest.

Nickel has seen a sustained decline and has been one the weakest base metal counters in the recent weeks. A decline below the Rs950 levels may see the bears covering their shorts as the metal shows signs of approaching supports in case prices dip below the Rs950 mark. Market internals indicate 12% increase in turnover and 47% increase in open interest.

Silver has shown lack of direction as the open and close levels are 0.5% from each other and the near term trend is sideways.

Should the Rs51,750 levels give way, the downside may extend, especially if the open interest expands. Bullishness is likely if and only if Rs56,750 is sustainably overcome with high volumes and open interest expansion. Market internals indicate 9% increase in turnover and 2% increase in open interest.

Zinc has declined for the third week in a row and the Rs95 level is likely to be a short term support that needs watching in case of dips. The bulls will have an upper hand above the Rs104 levels only. Avoid buying aggressively in the near term. Market internals indicate 13% increase in turnover and 15% increase in open interest.

Energy
Crude oil has fallen off a mini cliff inspite of the 3.4 million barrel decline in the US inventory and that speaks of the nervousness in the undertone. Bulls face a double whammy of the Saudi output hike on one hand and the demand contraction on economic woes on the other. Unless the bulls manage to keep the price above the Rs4,400 levels, curb the temptation to go long. Market internals indicate 28% increase in turnover and 47% increase in open interest.

Natural gas has followed crude oil on the way down and that is a sign of weakness as both counters tend to move in inverse relation. A decline below the Rs188 levels will be a sign of the bulls surrendering their longs as the weekly ascending trendline will be violated. Only a breakout past the Rs220 levels will indicate fresh buy. Market internals indicate 12% decrease in turnover and 18% increase 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

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