Column

Energy, bullion and zinc see trader interest

The markets witnessed a slight improvement in turnover last week as trader interest perked up on the back of triggers emanating from the US economy.

The turnover stars were energy, bullion and zinc which saw trader interest as players smelt a profit opportunity. The open interest gainers were aluminium, crude, silver, natural gas and zinc. Gold witnessed attrition due to the expiry of the current month series.

The alarming unemployment data (The jobless rate rose to 5.5% in May from 5.0% a month earlier), coupled with the record crude oil prices, is likely to lead to a continued flight to safety in the global commodity markets, and precious metals will be a favoured refuge for investors worldwide.

Agri commodities Mentha oil has shown a weak upmove in tandem with the overall market bullishness as the sentiment in the commodities markets turn optimistic. The 453 level will be a critical support in the coming week and the 474 will be a hurdle on the upsides. Avoid big ticket longs on this counter. Market internals indicate a 51% decline in turnover and a 13% decline in open interest.

MetalsAluminium has attempted an upmove, albeit on poor traded volumes, as the bulls lacked buying conviction. The primary reason for the upmove is the currency play and the upmove in copper towards the fag end of the week. Market internals indicate a 71% decline in turnover and a 22% increase in open interest. Bulls should curtail their exposure.

Copper has seen some buying momentum towards the end of the week on the back of BHP Billiton expressing intent on Rio Tinto. The currency factor also played a part as the easing dollar facilitated fresh longs in the global commodities mart. The 358 levels advocated as a resistance level in the preceding weeks will continue to exert pressure on the bulls and, once overcome, will provide a bullish trigger. Market internals indicate a 11% decliine in turnover and a 7% decline in open interest.

Gold has staged a recovery on the back of the surge in energy prices and as global investors flee towards relative safety. The 12220 level will be a trend determinator of sorts as momentum players are likely to maintain stop loss on longs at this erstwhile congestion level.

Nickel has seen a weak attempt of an upmove in tandem with copper and aluminium with some volume-based buying. However, the immediate outlook will remain under pressure from overhead supply as the bulls are clearly at a disadvantage. The 1060 level will be a stiff resistance on the upsides and, unless the bulls overcome this threshold with force, longs may be avoided. Market internals indicate a 11% decline in turnover and an 18% increase in open interest, indicating fresh longs.

Silver has seen a salutary upmove in tandem with gold as high energy prices and negative economic data acted as a bullish trigger. The 24200 level will act as a bullish threshold above which the bulls are likely to remain in control of the sentiments. The immediate upside resistance is the 25500 level which is likely to be a minor hurdle for the bulls. Market internals indicate a 7% increase in turnover and a 17% increase in open interest. These are bullish indicators. Hold longs and initiate fresh buys.

Zinc has consolidated with a bearish bias as the 82 level is acting as a support in the near term. This threshold is a critical one for the bulls as a consistent close below this level is likely to impact trader interest on the counter. Only a sustained trade above the 87 is likely to rope the bulls back in the game. Avoid longs for now. Market internals indicate a 11% decline in turnover and a 18% increase in open interest. These are indications of bearish build-up. Avoid bottom fishing.

Energy Crude oil has staged a remarkable comeback as the political premium nudged the speculative premium higher on this counter. Trading at record highs, this commodity is likely to see some hectic bear squeeze as the excessive shorts built up in the recent weeks bleed dry. The closing at near the weekly highs is a sign on underlying bullishness as buying is likely to emerge on declines. Market internals indicate a 8% increase in turnover and a 4% increase in open interest. These are bullish indicators.

Natural gas has spurted in tandem with crude oil as energy prices spiked on short-covering and fresh buying. The outlook continues to remain positive as was advocated last week. The 5350 level will act as a short-term support and the bullishness in crude prices is likely to rub off on this commodity as well. Market internals indicate a 63% increase in turnover and a 22% increase in open interest. These are bullish triggers and existing longs may be held.

Vijay L Bhambwani
(CEO - BSPLindia.com )
The author is a Mumbai based investment consultant and invites feedback
at vijay@BSPLindia.com or
(022 ) 2343848223400345.

Mandatory disclosure -the analyst has exposure toGold futures recommended above.