Keep an eye on copper to gauge trends in the industrials space

The markets witnessed a higher turnover week as trader participation perked up on the back of buoyancy in the industrials and energy counters.

Safe-haven buying continued in bullion and agri-commodities occupied a back seat. The MCX logged a 10% gain in turnover on a week-on-week basis and a 6% dip in open interest in the same period. The impeding expiry on base metals and silver saw the usual pre-expiry unwinding, which explains the decline in market-wide open interest.

Turnover gainers were almond, aluminium, copper, gold, lead, natural gas and silver. Open interest gainers were almond, aluminium, cardamom, chana, gold, mentha oil, nickel, potato, refined soya oil and wheat. US non-strategic crude reserves rose by 2 million barrels to the 365.1 million barrel mark. However, tropical storms / hurricanes near the US coast kept oil prices buoyant.

Agri-commodities
Chana has staged a rally which needs follow-up buying to overcome the overhead supply that is likely to be encountered by the bulls near the Rs 2,225 levels. A forceful breakout past this hurdle will mark the beginning of a sustainable upthrust. Fresh buys may be postponed till such a breakout is confirmed. Market internals indicate a 3% decline in turnover and a 1% rise in open interest.

Mentha oil has risen from above the crucial support area of Rs 700, which is now the floor for the bulls. A re-test of the Rs 775 levels may not be ruled out as the pullback gains momentum. Hold longs for now. Market internals indicate a 11% decline in turnover and a 13% increase in open interest.

Refined soya oil is showing signs of a faint rally that needs follow-up support and the price to stay above the Rs 445 levels consistently. The 435 level will now act as a short-term floor which should not be violated in case of a decline. Market internals indicate a 33% decline in turnover and a 9% increase in open interest.

Metals
Aluminium remains in a lower tops and bottoms formation even as the week-on-week closing is positive. The bulls will have to defend the Rs 87 levels stoutly if the upmove is to gain momentum in the coming week.

Hold existing longs for now, should the Rs 94 hurdle be overcome forcefully, expect an acceleration in the upsides. Market internals indicate a 27% increase in turnover and a 28% increase in open interest.

Copper has seen a sharp rally on the eve of its June series expiry and can go to the Rs 327 levels before selling pressure is witnessed. The red metal will be a bellwether for its base metal peers and needs monitoring to gauge trends in the industrials segment. Hold longs for now. Market internals indicate a 13% rise in turnover and a 20% fall in open interest as longs were pruned pre-expiry.

Gold has exhibited a dragonfly (tonbo) doji on the weekly charts, which indicates indecisiveness and the inability of bulls to take the metal past the previous weekly highs. Monitor Rs 18,500 level as a near-term support, below which the bears may get aggressive. Fresh buying must be postponed till the 19,000 level is overcome on a sustained closing basis. Market internals indicate a 10% increase in turnover and a 8% rise in open interest.

Nickel has seen a rally in tandem with its base metals peers and the Rs 890 level may be treated as a short-term floor for now. The bulls will need to keep the counter above the Rs 955 levels for most of this week if the uptrend is to gain momentum. Market internals indicate a 7% decline in turnover and a 20% increase in open interest.

Silver has displayed marginally higher relative strength as compared to gold and a rough and ready long-legged doji on the weekly candle stick charts. These are indications of price discovery in the near term as bulls and bears attempt to overpower each other. A sustained trade above the Rs 30,000 levels is needed to push prices significantly higher. Market internals indicate a 34% increase in turnover and a 2% decline in open interest.

Zinc has witnessed a strong surge in bullish sentiments as the counter overcame the prior week’s bearish range in a bullish engulfing pattern. The Rs 88 level will be a area to watch as a sustained trade above this level will put the bulls firmly in the driver’s seat. Market internals indicate a 1% fall in turnover and a 34% dip in open interest as the June series expiry approaches.

Energy

Crude oil has spiked higher on the news of the tropical storms “Alex, Celia and Darby” approaching the coast. The bulls have shrugged off the 2 million barrel addition to the US non-strategic petroleum reserves and it is now crucial that the Rs 3,580 support hold this week, on a closing basis. The possibility of testing the Rs 3, 700 levels is fair as long as follow-up buying is seen. Market internals indicate a 3% decline in turnover and a 6% decline in open interest.

Natural gas has witnessed a profit-taking bias eroding the previous week’s gains as the Rs 242 levels will now be a swing high that the bulls will need to overcome on a sustained closing basis for a new upthrust. On the flipside, as long as the
Rs 214 level holds on a closing basis, no fresh shorts may be contemplated. Market internals indicate a 14% rise in turnover and a 24% dip in open interest.

The columnist is the author of “A Traders Guide to Indian Commodity Markets” and invites feedback at vijay@BSPLindia.com.

Fair disclosure: The analyst has no futures exposure to any commodity recommended above.