Comment

The markets witnessed a higher turnover week as the trader participation perked up on industrials as US earnings displayed unmistakable signs of an economic upthrust. That the US home sales and consumer spending rose was a trigger that the bulls were awaiting. Bear covering completed the final picture. The MCX logged a 15% increase in turnover on a week-on-week basis and this was partly due to a lower base effect. The market-wide open interest rallied 8% as the traders enhanced their exposure.

Turnover gainers were almond, aluminium, copper, crude palm oil, gold, lead, mentha oil, natural gas, refined soya oil, silver, steel (GZB) and zinc. Open interest gainers were almond, copper, crude palm oil, gold, natural gas, refined soya oil, silver and tin. I expect the momentum in industrials to persist at least till November 25, when the US markets announce new home sales numbers, consumer confidence index, jobless claims and personal income figures, which could have a material impact on the near-term outlook of industrials. Maintain a long bias.

Agri-commodities
Chana has made new highs for 2009 as agri-commodities as an asset class continued their upward march. The resistances cleared, the upsides are likely to be curtailed by profit sales and/or regulatory announcements. Bulls may hold their longs. Market internals indicate a 16% decline in turnover and a 14% decline in open interest.

Mentha oil has rallied as expected last week, volumes rising further and open interest witnessing a mild attrition as bulls unwound some positions. Maintain longs with a trailing stop loss at the Rs 570 levels on a closing basis. Market internals indicate a 63% increase in turnover and a 2% decline in open interest.

Refined soya oil has recorded the highest closing after week ended May 16, 2009, which is a positive indicator. Higher turnover and open interest expansion are other positive indicators as agri-commodities are on an uptrend. Hold longs. Market internals indicate a 13% increase in turnover and a 9% increase in open interest.

Metals
Aluminium has finally surged past its near-term congestion to close at near the highest point of the week. Making a rare but powerful cup-and-handle pattern, accompanied by higher volumes and increased open interest, this metal has the potential to drub the bears this week. What the bulls need is an absence of negative surprises from the US economy. Market internals indicate an 88% increase in turnover and a 24% increase in open interest as bulls enhanced commitments. Hold longs.

Copper too has logged a new 2009 high as the real economy continued to look stable in its recovery. The rally coming on higher volumes and open interest expansion is sustainable as long as declines do not violate the Rs 315 levels on a closing basis. Hold longs. Market internals indicate a 26% increase in turnover and a 27% increase in open interest.

Gold has logged yet another high as the safe-haven buying continued unabated. With rising volumes and open interest expansion, these are indicators of a sustainable upthrust. A trailing stop loss maybe maintained at the Rs 17,100 levels for short-term momentum players. Market internals indicate a 14% increase in turnover and a 15% increase in open interest.

Nickel has witnessed an inside formation as the weekly range was within its previous week’s range. A decline below the Rs 747 levels with higher volumes will mean fresh selling as the bears may emerge with daggers drawn. A buy signal will be confirmed after a breakout past the Rs 825 levels is seen on forceful volumes. Market internals indicate a 10% decline in turnover and an 18% decline in open interest.

Silver has broken out of congestion with force and thereby completed a bullish pattern on the long-term charts that can test the Rs 40,000 levels in the coming 18 months. For now, momentum bulls Rs 27,650 level will be a stop loss on a closing basis and unless violated, I suggest holding longs. Market internals indicate a 51% increase in turnover and a 54% increase in open interest.

Zinc has moved up but not to the extent of copper and aluminium as both these metals made new highs whereas zinc is below its swing high of Rs 109 levels. For bulls, this high will be a hurdle that needs to be overcome forcefully and that will cause a short squeeze and fresh buys. As long as the counter stays above the Rs 105 levels, the probability of an upthrust remains fair, use this as a trend determination level. Market internals indicate an 8% increase in turnover and a 12% decline in open interest as bulls unwound longs.

Energy
Crude oil has seen profit sales as the decline in US inventories was marginal at 0.9 million barrels.

The Rs 3500-3525 floor support needs watching as the bulls must defend this band if the counter is to recover. Market internals indicate a 14% decline in turnover and a 21% decline in open interest as the November series witnessed expiry.

Natural gas is consolidating in tandem with Crude oil. The Rs 194 level must be treated as a short-term support below which the bears may resurface. Unless the counter trades above the Rs 226 levels, fresh longs maybe postponed. Market internals indicate a 10% increase in turnover and a 1% increase in open interest.

The writer is the author of “A Traders Guide to Indian Commodity Markets” and invites feedback at (022) 23438482.
Mandatory disclosure - the analyst has exposure to Nickel futures.