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The markets saw an eventful week as economic data from the US and unwinding by hedge funds dipped commodity prices lower.

Base metals bore the brunt of selling as industrial demand was expected to contract. Precious metals too had a bearish week as the de-leveraging by big-ticket funds was seen eroding prices. Central banks were on the sell side to generate liquidity.

Agri commodities were seen sinking in tandem as speculative unwinding saw erosion in prices. The week-on-week turnover on the MCX was lower by 8% and market-wide open interest fell 2%. This indicates withdrawal of resources from the trading system.

Agri commodities
Mentha oil is in a lower tops and bottoms formation for the fourth week in a row as selling pressure continues and buying support isn’t forthcoming.The immediate support will be at the Rs 465, then Rs 450 levels. Market internals indicate a 38% increase in turnover and a 54% decline in open interest.

Metals
Aluminium has seen a sharp decline in prices which reminds us of the week ended July 19, 2008. That the volumes and open interest expanded on declines indicated the bearish bias on the counter. Unless the metal starts to trade above the Rs 105 levels with high volumes and open interest, fresh buying should not be contemplated.

Market internals indicate a 8% increase in turnover and a 1% increase in open interest.
Copper is the most accurate barometer of industrial activity and the same has taken a drubbing. The previous week held some feeble promise as a close above the Rs 245 levels would have signalled a short-term buy, which did not occur.

The weekly closing has been the lowest since the week ended November 12, 2005, which is a bearish indicator for near-term players. Upsides may meet with selling pressure and overhead supply as trapped bulls liquidate longs near break-even levels. Market internals indicate 8% decline in turnover and a 38% increase in open interest — indicating a sell-and-hold approach from bears.

Gold has been choppy and that is an understatement for a day trader. The precious metal has turned on a dime twice during the week and added to the trading losses of momentum traders. Unless the metal closes above the Rs 12,200 levels forcefully, bulls are likely to be at a disadvantage.

Local traders are seeing a sense of buoyancy due to the festive season as well as attrition in the rupee, both of which can disappear rapidly. Absolute caution is advisable. Market internals indicate an unchanged turnover and a 1% decline in open interest.

Nickel is another industrial metal that has seen a constant decline. The weekly bar chart shows a four-week decline as the lower tops and bottoms formation remained in force and the closing has been at its lowest since listing on the MCX. Market internals indicate a 2% decline in turnover and a 15% decline in open interest, which are signs of some bear covering.

Silver has weakened more than gold in the recent weeks as it is a medley of industrial and hedge commodity. Since industrial demand is likely to be slack, the outlook on silver is relatively weaker compared with gold. The Rs 16,000 level is the last short-term support for this counter, which has been in a constant state of decline for the fourth week in a row.

Unless a close above the Rs 17,800 level is seen on high volumes, avoid fresh longs. Market internals indicate a 16% decline in turnover and a 11% decline in open interest.

Zinc has made new lows as the metal is at its lowest since listing on the MCX. Unless the bulls manage a close above the Rs 60 levels, that too on high volumes and open interest expansion, fresh longs should be avoided. Market internals indicate a 26% decline in turnover and a 17% decline in open interest.

Energy
Crude oil has seen weakness as demand destruction is seen easing sellers’ premium. Opec’s production cut has failed to keep the prices above the short-term support of Rs 3,400 and the possibility of Rs 3,100 levels can’t be ruled out. Market internals indicate a 15% decline in turnover and a 13% increase in open interest, which indicate a build-up in short positions.

Natural gas has seen a relatively better performance compared with crude as the Rs 310 level is likely to prove to be a support to watch. Only a decline below the Rs 310 levels will trigger a fresh sell and bulls are likely to return only above the Rs 355 levels. Till then, wait and watch. Market internals indicate a 16% decline in turnover and a 54% decline in open interest.

The author is a Mumbai-based investment consultant and invites feedback at
vijay@BSPLindia.com