Comment

Markets witnessed a higher turnover week as the traders participated in the buoyant commodity outlook - particularly the industrials. This was along expected lines as I had advocated last week, the improved economic outlook has started reflecting on base metals and energy counters which are overcoming selling pressure to log higher closing prices.

The week-on-week MCX turnover was higher by 4% and the market wide open interest was higher by 5%. Volume gainers were aluminium, copper, gasoline, gold, mentha oil, natural gas, nickel and zinc. Open interest gainers were aluminium, copper, crude oil, gold, mentha oil, natural gas, nickel, potato and refined soya oil. The interest on industrial counters is likely to extend and the only downside seems to be from routine profit sales.

Agri-commodities
Chana must remain above the Rs 2,425 double top levels as the bulls may lose their grip if the commodity falls below this threshold. The volatility in the last fortnight has seen a mild shakeout as open positions have been unwound marginally. A breakout past the Rs 2,555 levels will be a trigger for a fresh buy. Market internals indicate a 8% decline in open interest.

Mentha oil remains under pressure as the lower tops and bottoms formation remains intact. The Rs 445 level will be the next major support for the counter in the near / medium term. Market internals indicate a 2% increase in turnover and a 19% increase in open interest.

Potato is likely to witness support at its recent low of Rs 920 and as long as it trades above this threshold, expect the bulls to exude optimism. The Rs 1,090 level will be a near-term hurdle and a forceful breakout above this threshold will be needed for a fresh buy to be triggered. Market internals indicate a 37% decline in turnover and a 5% increase in open interest.

Refined soya oil is appearing to consolidate near its support level of Rs 435 which must not be violated if the bulls are to have fighting chance to return. The counter trading above the Rs 470 mark with higher volumes and open interest expansion will trigger a fresh buy. Market internals indicate a 25% decline in turnover and a 18% increase in open interest.

Metals
Aluminium has indicated an inverse head and shoulder bottom and the neckline is above the Rs 80 mark. The traded volumes have been higher and the commitment of traders is confidence inspiring. The logical target on the upsides is the Rs 95 + levels over the next couple of weeks, as long as economic data is neutral to positive. Market internals indicate a 41% increase in turnover and a 2% increase in open interest as bulls enhance commitments.

Copper remains above a bullish trendline and a breakout was indicated once the price trended consistently above the Rs 257 levels. This threshold will be a support on declines and needs to be maintained as a stop-loss on a closing basis by the swing traders.Market internals indicate a 14% increase in turnover and a 13% increase in open interest. Maintain a long bias.

Gold has surged to test the Rs 14,900 levels, with improved volumes and open interest. Rising crude oil prices and the declining US dollar vis-a-vis the euro has seen defensive buying re-emerge on the precious metal. The Rs 14,600 support must not be violated if the short-term momentum is to remain intact. Should the Rs 15,000 mark be overcome, expect Rs 15,300 levels to be a possibility in the near term. Market internals indicate a 6% increase in turnover and a 10% increase in open interest. These are indications of bulls initiating fresh longs.

Nickel is trading at its highest since the week ended September 20, 2008 and that is a sign of strength in the undertone. Traders expect supply side constraints in the coming months as demand pickup has been outpacing the supply side economics. As long as the metal stays above the Rs 765 levels, expect the upthrust to remain in force. Market internals indicate a 6% increase in turnover and a 17% increase in open interest.

Silver has rallied in tandem with gold and made a higher bottom in the bargain. A breakout will be signalled only after the Rs 23,000 level will be overcome on forceful volumes and open interest rallies in conjunction. The momentum will remain positive as long as the counter stays above the Rs 21,750 levels on a closing basis. Market internals indicate a 5% decline in turnover and a 3% decline in open interest.

Zinc has indicated a breakout above the Rs 80 levels and it is important that the commodity stays above this threshold if the uptrend is to persist. Should the bulls manage to have their way, the price can scale up to the Rs 85-86 levels in the near term. Market internals indicate a 38% increase in turnover and a 10% decline in open interest. These are indications of fresh bullish interest.

Energy
Crude oil has embarked upon an uptrend again as overseas triggers turned bullish towards the fag end of the week. A strong rupee kept the prices from running away, and as long as the price stays above the $65 on the Nymex, trader interest will remain buoyant. Market internals indicate a 4% decline in turnover and a 4% increase in open interest as the players initiated buy-and-hold positions. The US inventory fell by 1.8 million barrels to 342.7 million barrels which boosted prices.

Natural gas has rallied in tandem with the upthrust in crude prices and the Rs 210 level will be the next major resistance for the counter. Should this hurdle be overcome on high volumes and open interest expansion, expect the upthrust to gain momentum in the coming weeks. Market internals indicate a 1% increase in turnover and a 8% increase in open interest.

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com .

Mandatory disclosure - The analyst has exposure to aluminium and zinc