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Crude downsides cushioned by bear covering; demand for base metals spike following the earthquake in China

The markets witnessed a higher turnover on the back of resurgence in trading interest in base metal counters.

With the US economy appearing to change gears, traders started betting on higher prices in this asset class.

The extended buoyancy in the energy space kept the volumes higher and a major spike in bullion added to the turnover figures. The volume toppers were aluminium, crude oil, gold, silver, mentha oil, zinc, natural gas and nickel. Open interest, too, surged on the MCX on a week-on-week basis.

The marketwide open interest rallied 13% even as the turnover spiked 34%. We feel the interest is likely to remain high on hard assets this week.

Agri-commodities
Mentha oil has managed to latch on to gains made in the last fortnight. Long positions may be held with a stop at Rs 462 levels and a closing below this threshold on high volumes will be a sell confirmation. Market internals indicate an 85% increase in turnover and a 47% increase in open interest. These are positive triggers and bulls may hold with trailing stop-losses.

Metals
Aluminium has seen a salutary bounce in the prices as the base metal approaches the previous inflection point of Rs 130 levels. The high traded volumes imbibe bullish confidence as the trade interest appears to be high. The Rs 122 level will be a short term support and unless the same is violated on high volumes, the bulls may attempt to consolidate their hold on the metal. Market internals indicate a 278% increase in turnover and a 60% increase in open interest.

Copper has seen a bounce from Rs 334 support threshold that we have been advocating for weeks. Though the metal remains range locked for now, testing the Rs 355 congestion area is a positive indicator. That the open interest has jumped indicates that the players are biased towards a buy and hold approach as against frequent trades. The Rs 347 level will act as a momentum support in the coming days. Market internals indicate a 4% decline in turnover and a 63% increase in open interest.

Gold has seen a strong bounceback in tandem with energy prices as inflationary concerns spook global financial markets. The surge was on high volumes, indicating that the upthrust was on strong legs. Should the bulls manage to keep the metal above Rs 12,300 levels in the current month series, the short-squeeze that must invariably follow will do the rest. Market internals indicate a 33% rise in turnover and a 77% increase in open interest. These are positive indicators. Short-term players may hold longs with a stop-loss at Rs 12,100 levels.

Nickel has seen a decline as the metal made an “inside” formation on the weekly chart. The range being truncated, we feel the metal is bracing for a bigger move in the coming weeks. The Rs 1,100 level will be a crucial support base to watch out for below which the decline maybe sharper. Upsides may be likely only after the Rs 1,180 hurdle is overcome forcefully. Market internals indicate a 16% rise in turnover and a 17% increase in open interest.

Silver has higher relative strength as compared with gold as the commodity is industrial and investment grade combined. The Rs 23,200 level will be a momentum support to watch out for as the bulls are likely to be on the defensive below this threshold. A sustained trade above the Rs 24,000 levels will see a bear squeeze that is likely to result in accelerated upmoves. We advocate holding longs. Market internals indicate a 40% rise in turnover and a 20% increase in open interest.

Zinc has spiked higher in tandem with copper as demand for base metals has risen after the earthquake in China. The Rs 95 level will be a momentum support in the near term and as long as the bulls manage to keep this counter above this threshold, the upmove can gain strength. The 102-104 band will be a resistance zone for the nearmedium term players. Market internals indicate a 105% rise in turnover and an 18% fall in open interest, indicating minor profit-taking at higher levels.

Energy
Crude oil continued its northwards journey as the inventory data failed to arrest the buying frenzy. The Rs 5,180-Rs 5,200 band will now act as a support in the near term as the downsides are likely to be cushioned to an extent by bear covering. Higher levels are likely to witness a bear squeeze and therefore volatility is likely to accelerate on this counter. Market internals indicate a 40% increase in turnover and an 18% decline in open interest as the May series expired.

Natural gas has seen a bar reversal as the weekly close is lower than the open. The intra-week high of Rs 497 will now prove to be a meaningful resistance for the nearmedium-term as the upmoves encounter some overhead supply. The Rs 462 level will be a support area to watch out for. Any consistent trade below this threshold will imply further declines. Market internals indicate a 43% increase in turnover and an 11% decline in open interest. That indicates a bias towards profit talking on advances.

Mandatory disclosure: The analyst has exposure to gold futures recommended above.
vijay@BSPLindia.com