Go with industrial commodities; bullion may witness profit taking on Egypt resolution

The markets witnessed a lower turnover week as traders displayed caution due to the unfolding drama in Egypt.

The week-on-week market-wide turnover on the MCX fell by 11%. The market-wide open interest fell by 2%. The MCX turnover gainers during the week were aluminium, cardamom, chana, copper, crude palm oil, nickel, potato and sugar. The open interest gainers were aluminium, chana, crude oil, crude palm oil, lead and natural gas.

The US non-strategic petroleum reserves were higher by 1.9 million barrels at 345.1 million barrel mark. The coming week may witness some unwinding of longs as select metals are approaching expiry in the prompt month contracts. Traders should go with industrial commodities as bullion may witness some profit taking due to the resolution of the Egyptian crisis for now.

Agri commodities
Chana has achieved its primary objective of the Rs2,600 levels and is now appearing to consolidate as trader participation is thin and upthrusts are met with profit sales. Should the commodity close below the Rs2,525 levels sustainably, the declines may gather momentum. Market internals indicate a 26% rise in turnover and a 33% rise in open interest.

Mentha oil is showing signs of consolidation as the lower tops formation remains in place. A sustained trade below the Rs1,000 levels on a closing basis will trigger some declines and the bears may return to press shorts. Await a confirmed drawdown before initiating shorts. Market internals indicate a 16% drop in turnover and a 5% decline in open interest.

Potato has rallied on the back of robust volumes and appears to be headed for higher levels as the bulls have taken the price past its highest levels after being relisted. Market internals indicate a 119% increase in turnover and a 4% decrease in open interest.

Refined soya oil has seen a continued profit taking as the bulls eased buying support and the counter fell towards its floor support at the Rs640 levels. A sustained trade above the `665 levels will reverse the bearish outlook in the near term. Avoid the counter till a breakout/drawdown occurs. Market internals indicate a 29% fall in turnover and a 9% fall in open interest.

Metals
Aluminium has witnessed some profit taking at higher levels and bulls need to watch the Rs112 level keenly for signs of a pullback. A violation of this level will imply some declines and longs may get unwound. Hold longs, if any, with a stop loss at the Rs112 mark on a closing basis. Market internals indicate a 22% increase in turnover and a 13% increase in open interest.

Copper has witnessed active profit taking as the open interest has been cut sizably. The bulls are likely to come back with conviction only above the `466 levels and that too if the upmove occurs accompanied by higher volumes and open interest expansion.  Await such a breakout before fresh buys. Market internals indicate a 9% increase in turnover and a 20% decrease in open interest.

Gold has seen a safe haven buying and the short term momentum will remain positive as long as the 20000 psychological threshold is defended by the bulls. Existing longs maybe held for now. Market internals indicate a 30% fall in turnover and a 3% fall in open interest.

Nickel has displayed a higher than average relative strength vis-a-vis its peers in the industrial metals space. The Rs1310 level maybe a short term resistance area. On declines, the Rs1272 level will need watching as a close below this level may trigger fresh sales. Avoid aggressive fresh buys for now.

Market internals indicate a 18% increase in turnover and a 21% decrease in open interest.

Silver has risen in tandem with Gold and the bulls are on a relatively strong wicket for now. As long as the Rs44,250 level is defended by the bulls successfully, the momentum remains positive and the upside potential holds. Continue to nurse long positions for now. Market internals indicate a 13% decrease in turnover and a 1% decrease in open interest.

Zinc dipped in line with its peers and the declines may test the Rs106 level if the selling/profit taking bias persists. Avoid buying at the current levels. Market internals indicate a 6% fall in turnover and a 16% fall in open interest.
Energy

Crude oil has declined for the second week in a row and the higher inventory and firm USD are adding to profit taking pressure on the counter. The possibility of the Rs3,800 levels cannot be ruled out in the coming week unless the bulls stage a surprise comeback. Await a breakout past the Rs4,025 levels before buying afresh. Market internals indicate a 2% decrease in turnover and a 51% increase in open interest.

Natural Gas has declined on the back of profit sales and news of some new discoveries. The Rs168 level will be a support area to watch from where some relief rally maybe anticipated. Should this support be breached, the bulls will be on the ropes. Fresh buying is ruled out till a sustained trade above the 198 levels is seen. Market internals indicate a 27% decrease in turnover and a 4% increase in open interest.

The columnist is 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 expo-sure to commodities recommended above.