Bullion’s buying support may continue this week

Markets witnessed a low turnover last week as the festive season, coupled with the war rhetoric, toned down participation levels.

In the absence of depth, price discovery was inefficient and moves were exaggerated in either direction on small amounts of buying or selling.  The volatility in the US dollar boosted bullion and a flight-to-safety was seen in the undertone. 

The week-on-week turnover fell by 42% and the market-wide open interest rose 14% on the Multi Commodity Exchange (MCX). 

This week may see an extension of buying support on bullion, especially since the geopolitical situation in India and Gaza are likely to prompt bulls into a buying bias.

Agri-commodities
Chana has closed at its lowest levels since the week ended March 25, 2006, which is a sign of weakness. The trend will change only above the Rs 2,075 levels. Fresh bullish commitments may be considered above such a breakout. Market internals indicate a 49% rise in open interest, indicating a fresh short build-up.

Mentha oil surrendered gains within a fortnight in building. Avoid fresh longs for now. Market internals indicate an 18% fall in turnover and an 8% dip in open interest, indicating trapped bulls nursing their positions.

Potato is showing signs of consolidation. Only a breakout past the Rs 545 levels will see a fresh upthrust. Traders must await such a move before initiating fresh positions.

Market internals indicate a 50% fall in turnover and a 5% rise in open interest.

Refined soya oil is showing signs of an uptrend that has extended into the third week after re-listing. As long as prices remain above the Rs 475 level, expect bulls to have an upper hand on the sentiments. Market internals indicate a 19% dip in turnover and a 1% increase in open interest.

Metals
Aluminium has shown feeble signs of a revival.  Bulls may get a fresh lease of life in the short term, provided the counter holds above the Rs 73 mark with forceful volumes and open interest expansion. The overhead supply is likely to be considerable and any rally may terminate without warnings. Profits on bull positions, if any, must be locked in rapidly. Market internals indicate a 44% decline in turnover and a 1% decline in open interest.

Copper has closed at almost the same levels where it opened for the week. That may be an early sign of a pullback, provided the bulls manage to keep the counter trading above the Rs 146 levels on a consistent closing basis. A close below the Rs 140 levels will vitiate the bullish sentiments and cause a fresh decline. Market internals indicate a 54% fall in turnover and a 16% decline in open interest.

Gold has made a bold upthrust that is likely to force a bear squeeze on short positions. The Palestine/Israel conflict is likely to be a headwind for bulls as the precious metal heads towards critical congestion levels. The price/volume/open interest/oscillator combination points towards an uptrend. A sustained trade above the Rs 13,600 levels will see strong breakout, provided the volumes are forceful enough. Market internals indicate a 38% decline in turnover and a 21% increase in open interest as fresh longs were initiated.

Nickel is showing signs of lethargy as the players are awaiting a clear breakout/breakdown in the prices before taking a fresh view. The Rs 440 levels will be a support to watch out for.

A sustained trade below this level will see a fresh decline. A breakout past the Rs 525 levels will be a buy confirmation, provided the upmove is on high volumes. Watch the peers in the base metals segment for signs of guidance on the outlook. Market internals indicate a 48% decline in turnover and a 14% decline in open interest.

Silver has failed to move in tandem with gold and that is a sign of relative under-performance and a short-term weakness. Should the metal stay below the Rs 17,000 psychological levels, the bulls may be forced to re-consider positions. I expect a marginal upmove in the first half of the week. A fresh view may be taken thereafter.

Market internals indicate a 50% decline  in turnover and a 12% increase in open interest.

Zinc has shown signs of a revival. The bulls will have to maintain levels above the Rs 54 mark to keep the upward momentum intact. Any sustained trade below the Rs 53 mark may weaken the near-term outlook. Market internals indicate a 21% decline in turnover and an 18% decline in open interest due to the impeding expiry of the December series.

Energy
Crude oil’s  fate will depend on the military situation in the Gaza area. Also, fears of an oil embargo by Arab producers may see a spike upwards if the hostilities extend. If the dollar’s fall is considerable vis-a-vis the euro, a fresh buy trigger could result. If none of these permutations play out, it may settle lower in the absolute near term. Market internals indicate a 45% fall in turnover and a 45% rise in open interest, indicating a fresh short build-up.

Natural gas has bounced with the rise in the residential heating demand due to a harsh winter in the northern hemisphere. The weekly chart shows a swing reversal. As long as the Rs 275 level holds, expect the upmove to sustain. If the dollar weakens, there may be a fresh upthrust. Market internals indicate a 2% decline in turnover and a 91% increase in open interest as fresh longs were initiated.

The author is a Mumbai-based investment consultant. He invites feedback at vijay@BSPLindia.com.
Disclosure: The analyst has exposure to gold futures.