Avoid silver till breakout

The markets witnessed a decline in turnover, partly due to the shorter week and mostly due to declining values. Energy, bullion and base metals fell in tandem, leading to a drop in open interest as traders cut positions on financial constraints. Past experience says these are indications of fresh weakness.

Week-on-week MCX figures indicate 15% decline in turnover and 3% decline in open interest. There was significant attrition in turnover in aluminium, crude oil, mentha oil, natural gas, platinum and zinc. The contrarian counter was nickel, which saw higher volumes. Open interest attrition was seen in copper, crude oil, mentha oil, natural gas and nickel. Build ups were seen in aluminium and gold — indicators of weakness. Abstain from averaging leveraged longs.

Agri-commodities
Mentha oil declined for the third week and the counter may just close the open gap on the weekly charts at the Rs 590 levels, before taking a directional decision. Till then, traders are advised to wait and watch.

Metals
Aluminium witnessed an extended lower tops and bottoms formation, as the overall decline continued. The weekly close was not very distant from the open and that raises the probability of some consolidation before the next decisive move. Outlook remains weak; upthrusts are likely to be met with overhead supply in the near term. Market internals indicate 23% decline in turnover and 2% increase in open interest as fresh shorts were initiated.

Copper saw sharp volatility, closing below the Rs 330 threshold for a fortnight. In case of upmoves, this threshold is likely to be a resistance. Watch the Rs 302 level support, which should not be violated if the upmove is to sustain.

Gold closed at its lowest weekly levels after the week ended January 19. The yellow metal is likely to witness selling pressure as long as crude oil remains under pressure. Short- and medium-term uptrends stand fractured, but the long-term trend remains intact. The decline below Rs 11,000 levels will be a psychological blow to the bulls that will take the metal to the Rs 10,850 levels. Avoid bottom fishing.

Nickel saw the first serious attempt at revival since mid-June. Bulls who have initiated longs can look at the Rs 736 level for support. Momentum players may initiate longs as long as the counter remains above Rs 805 and trades on higher volumes and open interest.

Platinum has seen a lower tops and bottoms formation for the sixth week. Avoid initiating positions, as the counter is shallow and illiquid.

Silver violated critical supports and closed below the Rs 21,250 threshold. Should the weakness in oil and gold persist, expect the metal to test the Rs 18,250-18,500 support. Upsides will see resistance at Rs 21,300. Unless this threshold is overcome on high volumes, desist from fresh longs. Market internals indicate a 13% fall in turnover and a 2% rise in open interest, indicating fresh shorts being initiated.

Zinc saw a feeble recovery at the fag end of the week, though the overall picture remains negative. Momentum traders should avoid longs unless the metal trades above the Rs 74 level consistently. For now, watch the Rs 68 support.

Energy
ATF has seen no trading and can be avoided as the counter lacks liquidity and depth.
CER saw an inside formation, as the weekly range was within the previous week’s range. The relatively new counter saw abstinence from fresh commitments. Best avoided.

Crude oil closed higher than the weekly open; little consolation for the bulls as the overall pressure remains. High risk momentum traders may take note of the Rs 4,745 level as a swing support. As long as this threshold holds, bulls have a slim chance for pulling prices higher. Avoid big ticket trades for now.

Natural gas remains under pressure, but closed above the Rs 335 support, which needs monitoring. Expect further declines if there is selling pressure on crude oil. Avoid fresh longs unless the commodity consistently trades above the Rs 375 level.

Mandatory disclosure — the analyst has  exposure to gold futures
vijay@BSPLindia.com