Comment

The markets witnessed a higher turnover as trader participation rallied on the back of volatility caused by pessimistic news emanating from the US market. The negative economic/job data followed by expansion in the US gross domestic product (GDP) resulted in sharp swings in industrials and offered opportunities to short-term traders.

The Multi Commodity Exchange (MCX) witnessed a 9% rise in turnover on a week-on-week basis and the marketwide open interest fell 8% as the expiry of the October series witnessed routine paring of exposure levels. The week-on-week turnover gainers were almond, aluminium, chana, crude oil, crude palm oil, gasoline, gold, lead, mentha oil, nickel, platinum, silver, steel (GZB), wheat and zinc.

Open interest rose in chana, copper, crude palm oil, gasoline, gold, platinum, refined soya oil, steel (GZB) and wheat. Select agri-commodities have a buoyant outlook as the global buffer inventories are on the decline. The US non-strategic, commercial crude oil inventory rose by 0.80 million barrels over the previous week to 339.9 million barrels.

This factor, coupled with fears of a slow economic recovery, led energy prices to be subdued. Prices may remain subdued in the absolute near term, too.

Agri-commodities
Chana witnessed an “inside” formation as the week’s range was within the previous weekly range and the trading range was truncated after a big move a fortnight ago. The psychological threshold at Rs 2,500 is likely to offer a significant short-term resistance and the bulls will have to keep the counter above this threshold consistently if an upmove is to sustain. Buy only after the Rs 2,525-floor is established and activated. Market internals indicate a18% increase in turnover and a 24% increase in open interest as bulls added fresh longs.

Mentha oil needs to trade above the Rs 525 level on higher volumes if a sustained recovery in prices is to be witnessed. The winter months are cyclically bullish, though variations are known to occur. Market internals indicate a 102% increase in turnover and a 1% decline in open interest.

Refined soya oil witnessed small profit sales as the higher levels saw bull unwinding near the Rs 458 level, which is a near/medium-term resistance area. Unless the bulls manage to hold the counter above this threshold on a sustained closing basis, do not expect a major upthrust. Support is likely to emerge at the Rs 428 level in the coming week/s. Market internals indicate a 13% fall in turnover and a 3% decline in open interest.

Metals
Aluminium has settled lower after attempting to breakout of a bearish channel on the weekly charts. Unless the metal manages to trade above the Rs 94 levels consistently and forcefully, fresh longs are not advisable. Market internals indicate a 14% increase in turnover and a 13% decline in open interest as the October series drew to a close.

Copper slipped on the back of profit-taking as fears of a slow economic recovery and lack of clarity regarding the sustainability of Chinese demand plagued near-term sentiments. The Rs 320 hurdle is likely to be a meaningful resistance for the bulls and a sustained trade above this threshold will be needed if a fresh rally is to occur. On declines, watch the Rs 295 level as it is a support offered by a bullish trend line. Market internals indicate a 3% decline in turnover and a 3% increase in open interest as bears pressed fresh shorts.

Gold is moving in a pincer formation with the weekly charts showing a convergence towards the apex of an ascending triangle. This has bullish implications if sustained trade above the Rs 16,100 level is seen on the closing basis for 2-3 consecutive sessions. The Rs 15,700 level will be a support to watch out for in the near term for momentum traders. Market internals indicate a 1% increase in turnover and a 2% rise in open interest as bulls enhanced exposure.

Nickel is sliding along with its peers in the base metals segment as the industrials witness profit sales. The Rs 800-815 level will be a logical support to watch out for in the near term. Upsides are likely to be capped at the Rs 900 level, which has stopped the bulls on multiple occasions in the recent past. Market internals indicate a 14% rise in turnover and a 12% fall in open interest as the expiry of the October series saw routine unwinding of longs.

Silver witnessed a sharp decline to its medium-term floor at the Rs 27,500 level. If a forceful and sustained trade is seen below this level on a closing basis, expect another round of weakness. Bulls must avoid the counter till the Rs 27,500 resistance is overcome convincingly. Market internals indicate a 31% rise in turnover and a 13% decline in open interest.

Zinc has been outperforming its base metal peers and has reacted in tandem with the other counters in this segment. The weekly close has been lower but the base metal witnessed a big move in the week prior to that and a consolidation after such a major upthrust is along expected lines. Bulls must watch the Rs 95 level for signs of support in the near term — as long as it holds, the outlook is optimistic. Market internals indicate a 36% increase in turnover and an 18% decline in open interest.

Energy
Crude oil slid to its previous week’s lows as higher inventory coupled with a prolonged slowdown in demand expansion triggered profit taking. The recovery in the US dollar vis-a-vis euro at the 1.47 levels also prompted profit taking. The near-term sentiments are cautious, though the overall long-term trend appears to be upwards. Winter demand is a cyclical inflection point for the bulls and a sustained trade above the Rs 3,800 level must be awaited before initiating fresh buys. Market internals indicate a 12% increase in turnover and a 7% decrease in open interest as bulls surrendered positions on declines.

Natural gas has been outperforming crude oil in the recent sessions on the back of winter demand hopes in the northern hemisphere. The Rs 240 level must be defended vigorously by the bulls in case of declines if a strong upmove is to occur. The Rs 215 level will be a near-term support for now. Market internals indicate a 23% decline in turnover and a 27% fall in open interest as short-term traders locked in gains on advances.

The writer is the author of A Traders Guide to Indian Commodity Markets.