Proceed with caution and initiate fresh trades on lower

The markets witnessed a lower turnover week as the traders displayed caution due to the bias towards global deleveraging. The week-on-week market wide turnover on the MCX fell 25%.

The market wide open interest rose 1%. The MCX turnover gainers during the week were crude palm oil, lead, mentha oil, natural gas and nickel. The open interest gainers were aluminium, cardamon, crude palm oil, mentha oil, natural gas, nickel, potato, silver and zinc. The US non-strategic petroleum reserves were unchanged, at the 370.3 million barrel mark. The coming week is likely to witness a continued air of caution and traders must initiate fresh trades on lower exposure levels.

Agri commodities
Mentha oil has attempted to rally as the second season (monsoon) approaches, which is a cyclical upthrust period for this commodity. The weekly candle chart, however, indicates an inverted hammer which points towards overhead supply on the upsides as trapped longs head for the exit door. Await stability and indications of sustained buying before committing funds on the long side. Market internals indicate a 20% increase in turnover and a 13% increase in open interest.

Potato has remained under pressure as expected and the decline has left an open gap on the downside for the second time in a month. The bulls are likely to be on the ropes and bottom fishing is not advisable in the near term. Market internals indicate a 28% decrease in turnover and a 7% increase in open interest.

Refined soya oil has maintained its upward momentum that commenced a fortnight ago and the price must stay above the ¤630 levels with rising open interest and traded volumes to signal a tradable rally. The bias remains on the long side for now. Market internals indicate a 11% decrease in turnover and a 36% decrease in open interest.

Metals
Aluminium has fallen below a rising trendline and closed convincingly below that threshold. This indicates pressure in the near-term and the outlook is unlikely to turn positive unless the price manages to stay above the ¤116 levels again. Defer fresh buys. Market internals indicate a 2% decrease in turnover and a 1% increase in open interest.

Copper has rallied as shorts were squeezed and the price gained 2% on a week-on-week basis. The weekly charts indicate a bearish channel remaining in place and the bulls need to await a breakout above the Rs425 levels before initiating fresh longs.

Should this breakout be forceful and prices not decline below this threshold again, copper may return to its winning ways. However, pre-empting a buy decision is not advocated. Market internals indicate a 9% decrease in turnover and a 9% decrease in open interest.

Gold has rallied as the safe haven buying is back in vogue due to the uncertainty in the European economy. The Rs21,500 is likely to prove to be a rough and ready support in the near term.

As and when the price breaks out and stays above the Rs22,800 levels, a new upthrust may commence. Market internals indicate a 15% decrease in turnover and a 10% decrease in open interest.

Nickel has witnessed a sharp decline and is likely to remain under pressure in the absolute near term as the bears have added sizable shorts in the previous week. A contrarian buy call would be near the Rs1,010 levels where a pullback can possibly occur. Market internals indicate a 2% increase in turnover and a 87% increase in open interest.

Silver has underperformed gold and has made a hammer formation on the weekly charts even as the weekly range was inside the prior weeks range.

This inside formation seems to indicate a temporary attempt at stability and I maintain my view of the previous week that high risk appetite players may continue to buy small lots at the Rs50,000-52,000 band with a stop loss at the Rs47,000 levels. Fresh longs must be in smaller contracts rather than the regular lots. Market internals indicate a 39% decrease in turnover and a 5% increase in open interest.

Zinc has seen an inside formation on the weekly charts and the compression in the weekly range is leading to a build up of forces that will see a forceful move in either direction in the coming week to fortnight. Fresh buying is suggest only above the Rs100 mark, if and when such a breakout occurs on forceful volumes and open interest expansion.

Market internals indicate a 7% decrease in turnover and a 10% increase in open interest.

Energy
Crude oil has made an inside formation on the weekly charts yet again and the Rs4,300 level will be a floor support for now.

A sustained decline below this floor will mean a fresh bout of weakness. The Rs4,675 level will prove to be a meaningful hurdle in case the upthrust extends. Market internals indicate a 11% decrease in turnover and a 4% decrease in open interest.

Natural gas has exhibited a spinning top formation on the weekly candle charts and an outside formation on the weekly bar chart.

The outlook is that of consolidation as the bulls and bears slug it out for supremacy. A sustained rally will be possible above the Rs200 mark only, so defer a buy decision. Market internals indicate a 26% increase in turnover and a 17% increase in open interest.

The columnist is the author of A Traders Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com or (022) 23438482.
Mandatory disclosure: The analyst has no exposure to any commodities recommended above.