Traders advised to initiate fresh trades on curtailed exposure

The markets witnessed a lower turnover week as traders displayed caution due to heightened volatility. The week-on-week market-wide turnover on the MCX fell 10%.

The market-wide open interest rose 1%. MCX turnover gainers during the week were aluminium, copper, crude oil, crude palm oil, lead, nickel, potato and sugar. The open interest gainers were crude oil, crude palm oil, lead, mentha oil, natural gas, nickel and sugar. The US non-strategic petroleum reserves were higher by 3.8 million barrels, at 370.3 million barrels.

Bullion continued to remain volatile, along with energy, as Libya and Syria kept investors on the edge. Base metals were under pressure and are likely to witness a muted performance in the absolute near term.

Traders are advised to initiate fresh trades on curtailed exposure levels.

Agri commodities
Mentha oil continues to plummet lower as the summer season is an anti climatic cyclical period for this commodity. The price is likely to remain under pressure for the coming 4-6 weeks, during which the ¤850 level cannot be ruled out as a possibility. Avoid bargain buying. Market internals indicate a 12% decrease in turnover and a 5% increase in open interest.

Potato is in a falling trajectory again as the pullback in the prior week merely filled an open gap and the rising volumes in a falling market exacerbate a weak outlook. Should the price stay below Rs560, fresh declines are not ruled out. Market internals indicate a 1% increase in turnover and a 24% decrease in open interest.

Refined soya oil has rallied after a six-week-long consolidation, but still remains within a congestion band, which will be overcome when the Rs635 level is overcome forcefully with high volumes and open interest addition. It is important that the price stay above the Rs630 level in case of declines. Market internals indicate a 27% decrease in turnover and a 31% increase in open interest.

Metals
Aluminium has witnessed a consolidation as the weekly charts indicate an inside pattern and the week-on-week close has been mildly negative. The outlook for base metals has turned weak recently and a strong upthrust is not probable in the near term. What can be achieved is a pullback rally at best, which may confirm a total trend reversal provided the prices stay above the Rs120 level at a later stage.

Market internals indicate a 7% increase in turnover and a 4% decrease in open interest.

Copper has stayed within a downward sloping channel but has exhibited a doji as the bulls and bears fought an indecisive battle where the opening and closing prices were close to each other. Only a sustained trade above the Rs410 level will invite a fresh buying confidence.

Till then, defer fresh longs. Market internals indicate a 1% increase in turnover and an 8% decrease in open interest.

Gold market internals indicate a 21% decrease in turnover and a 1% decrease in open interest.

Nickel has been drifting gradually and is likely to encounter resistance at the Rs1,140 levels which must be overcome sustainably if the metal is to get bullish again. Watch the Rs1,075 level as a near term support for now. Market internals indicate a 13% decrease in turnover and a 2% increase in open interest.
Silver has traded as per my expectations as the counter sucked in traders near the Rs60,000 levels only to plunge sharply.

Predictive charts seem to indicate the downsides appear limited as the decline has seen longs being surrendered by weaker hands that held them. Buying near the Rs50,000-52,000 levels seems to be a prudent strategy for the higher risk appetite players with deep pockets to fund the mark-to-market positions. Market internals indicate an 18% decrease in turnover and an 8% decrease in open interest.

Zinc has witnessed an inside pattern on the weekly bar charts and a “harami yose sen” pattern on the weekly candle charts. That indicates the likelihood of the Rs93 level, acting as a near term support. A sustained trade in the three-digit mark will rope in the bulls. Await a confirmed breakout before going long. Market internals indicate a 4% decrease in turnover and a 10% decrease in open interest.

Energy
Crude oil has made an inside pattern too on the weekly charts and has rallied a percent with some gains in open interest. While the pullback maybe temporary in nature with some dips in the offing, traders should remember that June typically marks the beginning of the hurricane season in the US and refining capacity is curtailed. Declines may witness cushions and therefore big ticket shorts maybe avoided. Market internals indicate a 13% increase in turnover and a 7% increase in open interest.

Natural gas has moved back to into its groove of inverse correlation with crude oil and has fallen as oil has risen. Unless the bulls manage to overcome and keep the price above the Rs210 levels, the counter is unlikely to witness sizeable upthrusts. Market internals indicate a 33% decrease in turnover and an 18% increase in open interest.

The writer is the author of A Traders Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com or (022) 23516124.
Mandatory disclosure: The analyst has no exposure to any of the commodities recommended above.