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The markets saw a higher turnover week (partly due to the lower base effect) as the action on the base metal counters boiled over. The $1 trillion stimulus at the G-20 meet didn’t go unnoticed. Short covering-cum-fresh buying boosted industrial commodities even as safer havens like bullion slid lower. The week-on-week turnover on the MCX rallied 4% and the marketwide open interest slipped 6% on the back of long unwinding in crude oil and gold.

This week is likely to witness an extension in the upthrust on base metals as hopes of an economic recovery will be dominant drivers.

Agri Commodities
Chana saw the highest weekly close after the week ended January 31, 2009, which is a positive indicator. The volume indicator points towards bulls holding their longs and fresh upsides may not be ruled out if prices stay above the Rs 2,270 levels.
Mentha oil has attempted a recovery after a fortnight of weakness. The Rs 540 level will act as a short-term support that will determine the trend in the near term. Fresh bullishness will be seen only above the Rs 580 levels. Market internals indicate a 19% decline in turnover and a 26% decline in open interest.

Potato has recorded its highest weekly close on the MCX. The Rs 675 level will now act as a support on declines. Short-term momentum players may watch the Rs 745 levels as a support in the near term. Fresh longs may be avoided. Market internals indicate a 211% increase in turnover and a 10% increase in open interest.

Refined soya oil has recorded a second consecutive week of gains as the commodity heads towards the Rs 465 resistance area. The crossover above this area will trigger a fresh buy. Await a confirmatory breakout before buying.

Metals
Aluminium has risen on a marginal boost in volumes as the base metals segment saw a resurgence led by copper. The trickledown effect was seen on aluminium, too, as the white metal rose towards its 3-week highs. A breakout above the Rs 75 levels with forceful volumes will see a fresh round of buying as a short squeeze coupled with fresh buying may emerge.

Copper has led the recovery in the base metals pack as the industrial metal has seen significant short covering-cum-fresh buying. The Rs 214 level will now be a momentum threshold above which the Rs 230-235 band will become possible. Hold existing longs and add small lots to existing positions only.

Gold has fallen as was advocated last week, due to the expansion in global risk appetite and a resultant inflows into riskier asset classes. The price/volume correlation points towards a bearish net field range pattern and higher levels are therefore likely to encounter selling pressure in the near term. Desist from initiating fresh long positions. Market internals indicate a 5% increase in turnover and a 28% decline in open interest due to unwinding.

Nickel is showing signs of revival as the peer group indicates signs of life. The Rs 465 level will be a near term floor that needs to be watched in case of declines. As long as this support holds, an upmove can’t be ruled out. Upmoves may extend to the Rs 575-595 band, which will be the immediate resistance levels.

Silver has fallen in tandem with gold and the volume indicators are mirroring the pattern on gold. With a bearish net field range, the overhead levels are likely to encounter overhead supply at the Rs 22,500 levels. Unless this hurdle is overcome convincingly and forcefully, fresh buying is ruled out. Market internals indicate a 1% decline in turnover and a 3% increase in open interest.

Zinc has made a short-term support base at the Rs 63 levels. As long as this level holds, the outlook will remain bullish for the momentum players and investors alike. The Rs 72 level will be the next area of resistance that the bulls need to watch out for. Market internals indicate a 23% decline in turnover and a 19% decline in open interest.

Energy
CER has seen recovery in prices but a clear breakout is unlikely unless the counter trades above the Rs 775 levels and on higher volumes. Till then, bulls should abstain from initiating fresh longs on this illiquid counter. Market internals indicate a 21% decline in turnover and a 81% decline in open interest.

Crude oil has made a dragon fly doji formation as the weekly opening and closing levels are almost the same and the levels are at the top end of the weekly range. These are positive indicators and should the price manage to trade above the Rs 2,725 levels on higher volumes, a fresh bout of buying may materialise. Market internals indicate a 1% decline in turnover and a 17% decline in open interest due to the impeding expiry of the April series.

Natural gas is showing signs of weakness as the Rs 185 near-term support remains the immediate floor for now. On the upside, the Rs 228 level will prove to be a hurdle above which fresh buying may be contemplated. Till such a breakout occurs, avoid buying. Market internals indicate a 30% increase in turnover and a 49% increase in open interest.

Mandatory disclosure: The analyst has no exposure to any commodities recommended above.
The writer is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com