Weakness to continue in energy, base metals

Traders with a ‘longs-only’ stance must curb their tendency to bottom-fish in the short term

The markets witnessed a higher turnover as traders’ participation perked up on declines. The US economic data was the main trigger for markets and a lot of trade also happened as per programmed signals. The bias was clearly towards the downsides and a spurt in open interest indicates fresh short sales across-the-board.

The week-on-week turnover on the Multi-Commodity Exchange (MCX) increased by 11% and volume gainers were copper and crude oil.

Open interest also increased in aluminium, copper, crude, gold, natural gas, nickel, silver and zinc.

Traders with a ‘longs-only’ stance must work towards curbing their tendency to bottom-fish in the absolute short term.

Agri-commodities
Mentha oil has declined for the fifth week in a row (there was an inside formation once). The commodity is likely to attempt to fill the gap created by an upmove. This is expected at the Rs 590 level, which may be tested to complete the chart formation. A fresh view may be taken thereafter. Bullishness is expected only above the Rs 655 level. Market internals indicate a 32% decline in turnover and a 1% decline in open interest. Avoid this counter for now.

Metals
Aluminium has seen profit sales owing to a consolidation in base metals. The offtake was sluggish, hence sentiments were weak too. The Rs 114 level is a technical threshold below which bears may get more aggressive.

A bullish outlook will emerge only above the Rs 122 level, that too on high volumes. Market internals indicate a 51% decrease in turnover and a 16% increase in open interests, indicating a bearish build-up.

Copper has declined as the Rs 337 bearish pivot remained inviolate on the upside. Unless this threshold is overcome on forceful volumes, the metal will remain under pressure in the absolute near term. The immediate support will be at the Rs 302 level and should this be violated, expect a fresh round of weakness. Market internals indicate a 1% increase in turnover and a 40% increase in open interest.

Gold has established and activated a resistance at the Rs 12,000 level, which is now a hurdle on the upsides. Bulls will return in the fray only if the metal sees a consistent close above the Rs 12,000 barrier, else the weakness will continue. A decline below the Rs 11,125 level with high volumes will mark a fresh round of selling that may see gold testing the Rs 10,600-10700 level over the next few weeks. Market internals indicate a 1% decline in turnover and a 9% increase in open interest. Avoid bottom-fishing for now.

Nickel’s gains during the last three weeks were eroded due to profit sales. Now, the bulls need to watch the Rs 790 threshold as any fall below this level will mean a bearish swing reversal as per the Gann charts. Buying should be contemplated only above the Rs 935 levels, that too on very high volumes. Market internals indicate a 37% decline in turnover and a 43% increase in open interest on fresh shorts build-up.

Platinum is trailing gold and may turn weak if the yellow metal declines below the Rs 11,200 level. The bullish trigger for the very short-term momentum players will be the Rs 20,450 level, above which the bulls will have to stay put to spur a revival. The precious metal may test the Rs 18,600 level on declines. Market internals indicate a 44% decline in turnover and a 4% dip in open interest.

Silver’s weekly low, which was the steepest fall since week ended December 22, 2007, underscores a near-term weakness seen on this counter. The white metal is falling faster and sharper than gold in relative comparison. This indicates a higher probability of a fall in the short term in comparison to gold. The Rs 18,450-18,550 band may be a support area to watch out for in the coming weeks. Market internals indicate a 8% decline in turnover and a 41% increase in open interest.

Zinc made a feeble attempt at an upmove, which fizzled out due to selling pressure at advances. The bulls will return only after the Rs 83 threshold is overcome on high volumes and on an open interest expansion. On the flip side, a consistent trade below the Rs 76 threshold will see further weakness. Market internals indicate a 20% decline in turnover and a 10% increase in open interest. These are indications of fresh short sales.

Energy
Aviation turbine fuel (ATF) saw no activity. Traders may avoid this counter for now.
Certified emission reductions (CERs) has made a small attempt to an upside. However, the absolute short-term outlook will be bullish only above the Rs 1,400 level on higher volumes. A complete trend-reversal will be seen above the Rs 1,485 level and only if the upthrust is on high volumes.

This counter is also relatively dry and exposure should be held back till the price discovery mechanism is more efficient. Market internals indicate a 61% decrease in turnover and no change in open interest.

Crude oil has violated the Gann swing significant inflection point at the Rs 4,745 level and also closed above it. The immediate outlook is weak. So, unless the commodity trades consistently above the Rs 5,080 level on high volumes, expect no relief for the short-term bulls. Market internals indicate a 5% increase in turnover and a 22% rise in open interest.

Natural gas breached the support threshold of Rs 345 level, but closed below it. This level may now be a resistance on the upsides, which will keep bulls under pressure till it is overcome. The future of this commodity will be linked to crude oil’s. Market internals indicate a 12% decrease in turnover and a 74% increase in open interest, which indicates a fresh build-up of short sell.

Mandatory disclosure:   The analyst has exposure to  gold futures.
vijay@BSPLindia.com