Further uptick likely in base metals

The markets saw a higher turnover week as the lower base effect, coupled with a rally in industrials, boosted participation. The volumes, however, remained lower than a fortnight ago.

The MCX recorded week-on-week gains of 24% in turnover and 7% in open interest. As was anticipated, the base metals extended their upthrust and provided the maximum impetus in volumes. Bullion and energy remained subdued as the risk appetite of traders expanded and safe haven buying eased. The continued rise in the US non-strategic petroleum reserves rose yet again, curbing sharp upswings in crude oil. The weekly turnover gainers were aluminium, copper, crude oil, gold, mentha, natural gas, nickel, potato, refined soya, silver and zinc. The open interest gainers were aluminium, chana, copper, gold, mentha oil, silver and zinc. A further upthrust in base metals is not ruled out, though big-ticket buying is not advisable.

Agri Commodities
Chana is trying to bridge the open gap left after re-listing, a confirmation of which will be a consistent close above the Rs 2,420 levels. The weekly charts indicate a rising tops and bottoms formation and the breakout will give the bulls profit opportunities, if it is accompanied by higher volumes and open interest expansion. 

Mentha oil is showing lack of follow-up buying at higher levels as the commodity heads
back towards the support at the Rs 540 mark. Should this threshold be violated, expect fresh weakness. Market internals indicate a 35% increase in turnover and a 13% increase in open interest.

Potato has continued its stratospheric rally as the commodity trades at its highest since listing on the MCX. While fresh upsides cannot be ruled out, fresh longs are not advisable as a corrective decline may be sharp and sudden.

Refined soya oil is trying to bridge an open gap and the immediate resistance towards that objective will be at the Rs 525 levels. Fresh longs must be initiated only above these levels if the upthrust is on high volumes and open interest expansion. Market internals indicate a 50% increase in turnover and a 34% decline in open interest.

Metals
Aluminium has seen a sharp crack in the upthrust as the Rs 79 level will now become an immediate resistance for the bulls to overcome. Should the base metals segment continue to witness weakness/profit sales, this metal may see fresh downsides. Watch the Rs 70 levels for support. Market internals indicate a 111% increase in turnover and a 100% increase in open interest.

Copper saw a bullish pattern for the sixth week in a row as economic data has been less depressing than expected. The Chinese offtake hopes are the primary immediate trigger for the bulls to enhance their exposure. Watch the Rs 245-252 band this week for resistance. Market internals indicate a 50% increase in turnover and a 13% increase in open interest.

Gold has slid below the Rs 14,000 threshold on an intraday basis as the safe haven buying is easing for the third week in a row. The rising crude inventory is adding to the unwinding of long positions on gold and the consistent closing below the Rs 14,000 mark on higher volumes will trigger fresh weakness. Market internals indicate a 14% increase in turnover and a 2% increase in open interest.

Nickel has been a late riser in the base metals pack and may test the Rs 665 levels that will act as the immediate resistance threshold. Only a sustained trade above this threshold on higher volumes and open interest expansion will trigger further buying. 

Silver has weakened for the fourth week in a row as the precious white metal undergoes bull unwinding in tandem with gold. The Rs 20,500 level will be a trend determinator; as long as the counter trades below this level, bears will have an upper hand. Market internals indicate a 33% increase in turnover and a 50% increase in open interest.

Zinc has been one of the strongest counters in the base metals segment along with lead as the rally has been backed by volumes and open interest. The Rs 81 threshold will be a litmus test for the bulls as it will invite profit sales from the short- and medium-term players. Market internals indicate a 127% increase in turnover and a 2% increase in open interest.

Energy
Crude oil continues to make a hammer (Doji) formation as the counter declined during the week only to close at the upper end of weekly range. Only a consistent trade above the Rs 2,725 levels will see fresh buying momentum from the bulls sitting on the fence. Buy only after a forceful breakout is seen above this threshold. Market internals indicate a 5% increase in turnover and a 29% decline in open interest.

Natural gas has seen a bullish piercing pattern as the weekly close has penetrated more than half way into the previous week’s range. A consistent close above the Rs 195 levels will be needed to trigger the next round of buying. Market internals indicate a 47% increase in turnover and a 13% decline in open interest.

Mandatory disclosure: The analyst has no exposure to the commodities recommended above.

The writer is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com