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ShareVolatility in earnings will trigger 'flight to safety' syndrome, push prices up
Commodity markets witnessed an extension of the bullishness in energy and bullion, at the expense of profit-taking in base metals. The weak economic outlook worldwide seemed to have impacted sentiments on base metals and fundamentals seemed to have caught up with prices.
Traded volumes shrank as the overall MCX week-on-week figures were lower by 9%, whereas the market-wide open interest was lower by 6 %. Volume gainers last week were crude oil, mentha oil, potato and natural gas.
Open interest rose in aluminium, copper, gold, nickel, silver, zinc and mentha oil. This week is likely to be volatile, as news triggers from the US will impact prices ever more sharply.
Agri-commodities
Chana too has seen profit-taking and the 2,950-3,000 levels will now be an area of resistance, where overhead supply and long unwinding may occur. The support area of 2,600 may see some buying, but needs monitoring. Market internals indicate 1% increase in open interest - a sign of short selling.
Kapas has seen a negative divergence on the charts and the 500 level will be a stiff near term resistance. A high pressure decline below the 487 level will create a head and shoulders top formation on the charts, with a profit motive at 475. That level may be used for booking profit on short sales.
Mentha oil is seeing a rally build up, but is running into resistance at the 460 levels. The litmus test for the bulls will be a sustained trade above this threshold on high volumes. Declines in the near term will see some support at the 432-438 band. Watch this area for fresh buying cues. Market internals indicate 94% increase in turnover and 7% increase in open interest.
Refined soya oil has seen a small bounce back after the steep decline, in the bargain establishing a short term floor at the 651 level. Should this level offer reliable support on declines, the bulls may get a reprieve. If not, the lower tops and bottoms formation is likely to take its toll and lower levels are a fair possibility in the coming weeks. Market internals indicate 40% decline in turnover and 9% decline in open interest. Traders appear to be losing interest on this counter in the absolute near term.
Metals
Aluminium has seen a profit-taking bias as the near 50% appreciation in prices has resulted in short term overbought levels. Last week's negative divergence has taken its toll and market internals indicate 16% decline in turnover and 22% increase in open interest. The higher open interest indicates a short build up. Avoid aggressive purchases.
Copper has seen profit taking and the 354 level is now the established and activated resistance area in the near/medium term. Weak economic data is likely to impact this metal the most, as it is completely dependent on industrial off take for price discovery. Market internals indicate 12% decline in turnover and 4% increase in open interest, as traders have added shorts at lower levels too. Avoid bottom fishing.
Gold has seen significant bullishness as the consistency in the rising tops and bottoms formation is dependable and based on a combination of price/volume/open interest confirmation.
This week may see more support emerging, as results from the US financial sector are due. The more volatility in the earnings/forward guidance from the firms, the higher will be the "flight to safety" buying trigger. Long term predictive charts indicate 12-15% headroom on this counter over the coming quarters. Nurse longs. Market internals show 9% decline in turnover and 7% increase in open interest -- indicating a buy and hold approach, rather than short term trading.
Nickel is showing early signs of recovering from profit sales. Support is likely at the 1,230 level, but any further decline on high volumes will indicate a fresh bout of weakness.
On the flip side, any forceful trade above the 1,335-1,345 levels will see fresh buying as bulls return to the counter. Await a confirmed breakout before fresh buying. Market internals indicate 20% decline in turnover and 6% increase in open interest.
Silver has seen a rally in tandem with gold as the flight to safety syndrome was witnessed on this counter as well. The 24,750-25,000 band is now the near term support and unless this level is violated, bulls may hold charge. The 27,150 level will be the immediate hurdle in the coming week/s and a fresh upmove will commence if this resistance is broken through.
The immediate triggers will be the news from the US financial sector. Market internals indicate 11% decline in turnover and 4% increase in open interest. A buy and hold approach is indicated.
Zinc has seen some buying emerge at the 102 level, which will be a near term support. A fresh buying trigger will be trade above the 110 level on high volumes. Until that happens, avoid longs. Market internals indicate 28% decline in turnover and 9% increase in open interest.
Energy
Crude oil has seen a 1,000 point rally and the higher levels are witnessing some profit-taking. A consistent trade below the 4,370 level on higher volumes in the coming week will confirm profit sales. The 4,490-4,500 band will offer some resistance on the upsides and only high-volume trade above this threshold will imbibe bullish confidence in the market. Market internals indicate 13% increase in turnover and 42% decline in open interest as expiry-related unwinding was seen last week.
Natural gas has seen minor profit sales at higher levels, in tandem with crude oil. A consistent trade below the 397 level on higher volumes will indicate profit-taking and the commodity will seek support at the 388 level. This week will see price discovery emerging, as the southern part of the US recovers from weather-related problems. Market internals indicate 6% increase in turnover and 4% decline in open
interest, indicating some unwinding at higher levels.
Mandatory disclosure - the analyst has no exposure to any commodities recommended above.
vijay@BSPLindia.com
