Momentum is with base metals

The markets saw a higher turnover week as the traders participated whole heartedly in the upthrust in energy and metals pack.

The expansion in risk appetite saw mild attrition in prices of safe haven commodities like gold and silver which remained under pressure from profit sales. The week-on-week increase in turnover and open interest on the MCX was 22% and 11%, respectively.

The turnover gainers were aluminium, copper, gold, mentha oil, natural gas, nickel, potato, refined soya oil, silver and zinc. Open interest gainers were aluminium, copper, crude oil, gold, mentha oil, nickel, silver and zinc.

This week is likely to see a trickle-down effect of the previous week as momentum continues to build up in base metals. Follow-up buying thereafter will determine the sustain ability of the upthrust. China’s stimulus package impact will be keenly awaited.
Agri-commodities

Chana has seen an undecided week as the bulls and bears have failed to emerge as clear winners. The Rs 2,175 level is likely to prove to be a short-term floor where support may be expected this week. Below this support, bullish bets are off.
Mentha oil has reacted as expected from below the Rs 620 hurdle put forth recently. Unless this threshold is overcome, avoid fresh longs.

Watch the Rs 550 support. Market internals indicate a 2% increase in turnover and a 2% increase in open interest.

Potato was unable to pierce previous high of Rs 680 and that attracted profit-taking from short-term players. A consistent trade below the Rs 660 mark will see a technical pattern completed. A fresh view needs to be taken. Market internals indicate a 96% increase in turnover and a 5% decline in open interest

Refined soya oil’s near-term outlook is weak. Below Rs 435 levels, this counter will see fresh declines. Market internals indicate a 77% hike in turnover & a 5% fall in open interest.

Metals
Aluminium has seen a smart recovery as the Rs 70-71 band has been overcome with strength. The weight of evidence supports long positions as long as the Rs 71 support holds this week. The upside potential is till Rs 74-75 levels. Market internals indicate an 84% increase in turnover and a 10% increase in open interest.

Copper has outperformed base metals segment as hopes of an economic recovery, led by China’s stimulus package, gained ground. The metal has confirmed a flag formation that seems to point towards higher levels as long as the bulls manage to defend Rs 198 levels convincingly.

Gold is trading in a downward sloping channel as profit-taking bias continues. Rs 14,500 will be a strong support and Rs 15,675 will be a momentum resistance in the near term. Fresh buying should be initiated only above the Rs 15,700 levels. Market internals indicate a 22% increase in turnover and a 5% increase in open interest.

Nickel has failed to move in tandem with its peers in the base metals segment. Should the Rs 500 level be violated downwards, the bulls are likely to be in a soup for the near term. Fresh buying will emerge above Rs 520 levels.

Silver has bounced off its weekly lows and closed near Rs 22,800 levels, which is a three-week resistance / congestion zone. Fresh buying momentum will emerge only after it overcomes the Rs 23,000 hurdle forcefully on a consistent closing basis. Market internals indicate a 40% increase in turnover and a 18% increase in open interest.

Zinc has been choppy all of last week and closed near its weekly open, showing a level of uncertainty on the weekly charts. Bulls are likely to be a clear run only above Rs 65 levels on higher turnover and open interest expansion.

Energy
CER has seen a sharp bout of profit sales as the fortnight long uptrend was spiked by bull unwinding at higher levels. Fresh longs are to be avoided till the Rs 765 hurdle is overcome. Poor volumes continue to remain a major worry for this counter. Market internals indicate a 93% fall in turnover and unchanged open interest.

Crude oil has bounced off its double bottom support in the Rs 1,625-1,650 band. The momentum will remain with the bulls as long as Rs 2,400 levels hold as a support. Market internals indicate a 3% decline in turnover and a 31% increase in open interest as bulls resorted to a buy-and-hold strategy.

Natural gas has roared back as the weekly charts indicate a bar reversal and a swing change in momentum. For the bulls to remain in control, the Rs 210 support must not be violated on a closing basis this week.

The market has reacted to supply side fears as gas production has come off its peak output rates on recessionary fears. Market internals indicate a 67% increase in turnover and a 46% decline in open interest as profit sales were seen at higher levels.

Mandatory disclosure: The analyst has no exposure to  any commodities. The author is a Mumbai-based investment consultant.
He invites feedback at  vijay@BSPLindia.com