Watch base metals for signs of weakness; avoid big-ticket positions

The markets witnessed a hectic last week as the participation levels zoomed on the back of frenzied trading in hard assets.

The week-on-week turnover on the MCX rose 74 % and the open interest fell 3 %, partly due to profit sales and partly due to expiry related unwinding across select counters. The last week was eventful due to the imbroglio between Russia and Ukraine over natural gas supply as also the extended hostilities in Gaza.

Watch base metals for signs of weakness as the LME inventory levels are rising. All in all, this week should be tackled on a day-on-day basis and big-ticket, overnight positions may be avoided.

Agri commodities
Chana has rallied past a short-term congestion point at Rs 2,140 levels. As long as the bulls manage to keep the commodity above this hurdle, the outlook will remain positive. Positional traders may maintain this level as a stop loss for longs in the near term. Market internals indicate an unchanged open interest as traders seem to be cautious for now.

Mentha oil has shown a sign of consolidation as the weekly range was within the previous week’s range. The bulls are likely to re-emerge above the Rs 580 levels and traders are advised to await a breakout above this threshold. Market internals indicate a 26% decline in turnover and a 3% decline in open interest.

Potato is showing signs of rallying after re-listing, albeit in a calibrated fashion. The Rs 540 level will be a crucial hurdle above which the bulls are likely to dominate the bears and push prices higher. The traded volumes must soar on this breakout if the upthrust is to sustain. Market internals show a 1% decline turnover and a 3% decline in open interest.

Refined soya oil has rallied as the weekly gains have been the highest since re-listing six weeks ago. That the same was accompanied with high volumes indicates an active trader interest. Watch the Rs 485 level as a support below which the profit-taking momentum may spike higher.

Metals
Aluminium has managed to close with mild gains as higher levels attracted profit-taking from short-term bulls. The fact that the closing is near the opening levels indicates a pressure of overhead supply on the counter.

The Rs 72 level needs watching as a decisive trade below this threshold will see a weakness on this counter in the near term.

Copper has rallied for the second week in a row and that too on robust volumes. The short-covering is evident as the open interest has contracted. While the upthrust is a welcome indicator, traders must be prepared for an abrupt decline as the inventory build-up is a minor negative. All longs must be protected by a stop loss at the Rs 162 mark.

Gold is exhibiting signs of over head supply as the Rs 13,600 threshold is likely to be a hurdle in the near term. A consistent trade above this hurdle will cause a faster upmove as the bears are forced to run for cover. On the flip side, the bulls will be at a disadvantage below the Rs 12,900 levels if the fall is accompanied by higher volumes and open interest expansion.

Nickel has shown signs of profit sales and the Rs 650 level is likely to act as a hurdle on the upsides. Buying is recommended only after a breakout is seen on this counter on higher volumes. Till then, wait and watch. Market internals indicate a 45% increase in turnover and a 19% decline in open interest on profit sales.

Silver has reacted in tandem with gold and retraced as a lack of follow-up buying at higher levels spooked the bulls. Unless the bulls manage to maintain levels above the Rs 18,875 levels, avoid aggressive fresh buying. Decline may test the Rs 17,300 levels in the coming sessions. Market internals indicate a 92% increase in turnover and a 2% decline in open interest.

Zinc has rallied for the fourth week in a row and that raises the probability of a consolidation in the near term. Watch the Rs 61 mark above which the momentum will remain positive. A slide below this floor support must be watched keenly for the force of unwinding. Declines may test the Rs 56-58 levels if the selling is forceful.

Energy
CER is appearing to bottom out in the near term as the re-emergence of trading activity after a long hiatus is a welcome sign. The Rs 1,025 level needs watching as fresh sustained buying is likely only above this threshold in the near term. On the flip side, a forceful decline below the Rs 840 levels will trigger fresh sales.

Crude oil has shown a major bar reversal as higher levels attracted profit sales. Higher US petroleum reserves and a steady dollar have acted as dampeners for the bulls.
Expectation of a ceasefire in Gaza also cooled off the buying momentum.

Bulls are likely to be back in business only above the Rs 2,275 levels on high volumes and open interest expansion. Market internals indicate a 74% increase in turnover and a 30% increase in open interest. These are indicators of a fresh short build-up.

The writer is a Mumbai-based investment  consultant
Mandatory disclosure: The analyst has no exposure to any commodities recommended above