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The markets witnessed a lower turnover week due to a rash of trading holidays and the resulting poor participation.

The weak trend in the safe-haven commodities (bullion) persisted and industrial metals staged a late recovery as the bulls focused on the economic recovery hypothesis and shrugged off the swine flu concerns.

Though the turnover was lower in absolute terms, the pro-rata figures indicate a spike in gold, silver and natural gas which attracted trader attention. This week is likely to witness some action on energy counters — crude oil as well as natural gas. The fact that the US non-strategic reserves are higher by 4 million barrels and have not yet dampened the price is likely to be noted optimistically by the bulls. Watch the energy and industrial commodity counters this week.

Agri commodities
Chana has been unsuccessful in holding onto its recent gains and the Rs 2,450 is a trend determining threshold above which the bulls will have to maintain this counter if bullishness is to occur. Avoid initiating fresh longs till a confirmed breakout is witnessed.
The market internals indicate a 6% increase in open interest, signalling fresh short sales.
Mentha oil is moving within a triangular trajectory as the price range is narrowing since the last 8 months. Only a breakout past the Rs 590 levels with very high volumes will rope in the bulls as overhead supply will mount. Avoid initiating fresh longs. The market internals indicate a 6% increase in open interest, indicating shorts at higher levels.

Potato has seen a resistance emerge near the Rs 950 levels as profit sales have been seen around this inflection point. The FMC directive to the commodity exchanges to curb the price rise on this commodity is likely to keep at least some retail players at bay. Avoid initiating fresh longs. The market internals indicate a 1% increase in open interest indicating little change in the trader interest.

Refined soya oil has failed to overcome the 200-day simple moving average (SMA) which is currently poised at the Rs 530 levels. Unless this crossover occurs, expect the upsides to be laboured. Avoid initiating fresh longs for now. The market internals indicate a 29% increase in open interest, pointing towards fresh build up of longs.

Metals
Aluminium has taken support at its 13-week SMA and risen higher. The immediate overhead supply will be seen at the Rs 79 levels, which is the previous significant swing high. Once a forceful breakout is seen above this hurdle, expect a parabolic upthrust to commence. The market internals indicate a 67% increase in open interest as fresh longs were built up.

Copper has seen a late rally as the June contracts took off in earnest. The 200-day SMA has held and the Rs 243 level will be a litmus test for the bulls as it was the most recent top and will, therefore, see profit sales from late coming bulls trapped with longs. Watch the Rs 222 levels for a short-term support. The market internals indicate an 83% increase in open interest as fresh longs were initiated in the new series.

Gold continues to trend in its falling channel and may possibly test the Rs 13,700 levels if the downtrend is to persist. The lower tops and bottoms formation is still in force and the Rs 14,500 level will be a stiff near term resistance. Buying should be postponed till a convincing breakout is seen. The market internals indicate a 6% increase in open interest as fresh shorts were added.

Nickel is appearing as the most sluggish industrial metal and will need to breakout above the Rs 650 levels with high volumes and open interest combination for the bulls to return with force. Await a breakout before initiating fresh longs. The market internals indicate a 58% increase in open interest as fresh longs were initiated.

Silver has fallen in tandem with gold after displaying greater relative strength vis-a-vis the yellow metal. The Rs 19,600 level will need watching as a close below this threshold will imply a fresh decline as this level was a recent swing low. The market internals indicate a 21 % decline in open interest as longs were liquidated.

Zinc holds the maximum promise within the base metals as the counter is trading marginally below its recent hurdle of Rs 78 levels. A forceful breakout past this hurdle will signal a breakout above which a bear squeeze and fresh buying may be witnessed. Longs may be protected with a stop loss at the Rs 69-mark. The market internals indicate a 92% increase in open interest as fresh positions were added in the new series.

Energy
Crude oil has risen in spite of the higher US inventory. The rally is hinging on renewed hopes of a surge in demand fired by an economic recovery. The Rs 2,700 level will be a crucial level to watch. Should a consistent trade be seen above this hurdle, expect the bulls to ramp up prices rapidly. A bear squeeze is also likely to occur that will aid the upthrust. Buy on advances after the breakout occurs, to exploit the momentum. The market internals indicate a 2% decline in open interest as longs were liquidated on advances.

Natural gas has seen early signs of a mild recovery as the daily and hourly charts are pointing towards a possible swing reversal. A rally will get legs above the Rs 186 levels. Watch the volumes/open interest combination especially above the Rs 185 levels. Upthrusts in price must be accompanied by higher volumes and open interest by at least 30% for probable sustainability. The market internals indicate an 18% decline in open interest as longs were liquidated at higher levels.

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