Trader interest in metals seen persisting as the dollar slides

The markets had a good week as low-base effect and higher trader participation saw a 49% jump in the market-wide turnover on the MCX, week on week. Market-wide open interest on the MCX rallied 13% as traders renewed interest in industrial metals.
This week is likely to see continued trader attention on industrials as the US dollar slides vis-a-vis other currencies. US economic data will also hold the key to near-term trend determination.

Agri-commodities
Chana has seen an extension of the previous week’s decline as the bulls lacked the buying conviction even at declines. The Rs 2,150 support needs watching as it is a near-term bottom for the bulls to watch out for. The Rs 2,350 level will be a resistance in the near term. Market internals indicate a 54% increase in turnover and a 5% increase in open interest as bears press fresh sales.

Mentha oil has witnessed a surge as the winter season is a cyclical up phase in this commodity’s trading history. The upthrust has seen the weekly close at its highest since May 23, 2009 and that too on higher turnover and an open interest expansion. That is a sign of optimism and the Rs 518 level will now be a swing support for near-term traders who nurse long positions. Market internals indicate a 131% increase in turnover and a 22% increase in open interest.

Potato has seen a renewed buying activity as the monsoon problems have renewed the supply-side concerns. The Rs 1,455 levels will be a critical hurdle to watch out for and a breakout past this level will be a buy trigger provided the breakout is on forceful volumes and open interest expansion. Market internals indicate a 48% increase in turnover and a 29% decline in open interest as short-term player’s unwound long positions on advances.

Refined soya oil has tested new short-term lows this week as the Rs 418 support stands violated, though the closing is above this level. The Rs 400 mark will be a new area of support if the bulls are unable to defend the Rs 415 levels on a closing basis. A stronger rupee is aiding the landed costs and the crop arrivals in September are exerting pressure on prices. Bulls should refrain from fresh buys. Market internals indicate an 84% increase in turnover and a 5% increase in open interest as bears press fresh shorts.

Metals
Aluminium has seen a ranged trade within the falling channel on the weekly charts, though week-on-week closing is higher. The outlook for industrial metals has improved, but a breakout above the channel top will be a clearer indicator of a fresh sustained upmove at the Rs 92 level. On declines, support is expected at Rs 85. Market internals indicate a 45% rise in turnover and a 40% rise in open interest.

Copper has made a lower ‘tops and bottoms’ formation, but the weekly closing has been higher. The peer group has seen buoyancy and a breakout past Rs 300 on a consistent closing basis will be a fresh buy trigger for momentum bulls. Till then, hold back ‘buy’ moves. Market internals indicate 41% jump in turnover and 15% drop in open interest.

Gold has been buoyed by the volatility in the US dollar and the weekly close is at its highest since the week ended February 21, 2009. The breakout past Rs 16,000 and a sustained close above this threshold with high volumes and open interest expansion will trigger a flurry of fresh buying. Await a breakout past this level before initiating fresh buys. Market internals indicate a 41% rise in turnover and a 19% decline in open interest, as bulls unwound longs on advances.

Nickel has witnessed a salutary upthrust and that too on higher volumes and open interest expansion. The Rs 900 level is both a psychological threshold and a fibonacci hurdle. Once overcome on higher volumes, the headroom exists till Rs 940. In the near term, Rs 855 will be a support. Market internals indicate a 38% increase in turnover and a 12% increase in open interest as bulls enhanced exposure. That is a sign of optimism.

Silver is exhibiting higher relative strength vis-a-vis gold as the impending festive demand and volatility in the US dollar are causing safe-haven demand for bullion. A consistent trade above Rs 27,750 will see bears running for cover as a short squeeze can occur. Momentum traders are likely to surrender longs if prices stay below Rs 26,500 with volume expansion. Market internals show  a 74% rise in turnover and a 41% rise in open interest as bulls ramp up fresh longs.

Zinc is exhibiting high relative strength vis-a-vis its peers, in the base metals group, as the weekly charts show a highest 2009 close and the highest close after the week ended May, 17 2008. The Rs 90 threshold is a stop-loss for momentum longs and a consistent trade above the Rs 96 levels will force the bears to square up shorts, aiding the upsides. Market internals indicate a 64% increase in turnover and a 31% increase in open interest.

Energy
Crude Oil has witnessed an ‘inside’ formation as the weekly range is within the previous weeks range. The US commercial non-strategic petroleum reserves fell by 1 million barrels to the 337.4 million. With the decline in the dollar vis-a-vis the international basket of currencies, energy prices witnessed a cushion in the downsides. A breakout past the Rs 3,460 levels will be a breakout that will trigger fresh buying interest. The Rs 3,160 level will be an immediate technical support. Market internals indicate a 49% increase in turnover and a 1% decline in open interest.

Natural Gas has witnessed consolidation as the Rs 240 level will now be a short-term resistance on the upsides. The bulls will have to keep the near month futures above this threshold consistently if the upmove is to sustain. Buying must be contemplated only above this threshold. Market internals indicate a 39% increase in turnover and a 12% increase in open interest.

Fair disclosure: The analyst has exposure to Nickel futures.
Disclosure The analyst has no exposure to any commodity futures mentioned above.