Agri-commodities seen subdued; base metals may find buyers

The markets witnessed a higher turnover week, partly due to the fact that the previous week had a truncated session due to a local holiday.

The MCX recorded a 1% increase in marketwide turnover and a 6% decline in marketwide open interest. The open interest fall can be partly attributed to the expiry factor, which saw bull unwinding. Base and precious metals witnessed profit sales at higher levels.

Prices of agri-commodities eased and are likely to remain subdued. Week-on-week turnover gainers were aluminium, chana, copper, crude, lead, mentha oil, nickel, potato, refined soya oil, soybeans, steel (GZB), wheat and zinc.

Week-on-week open interest gainers were copper, mentha oil, natural gas, nickel and potato. Buying momentum may persist in base metals, unless negative news emerges to negate the ongoing uptrend. Expect a pre-expiry short squeeze.

Agri-commodities
Chana witnessed a wide intra-week range but managed to close at the opening and upper-end of the weekly range. On the Japanese candle charts, this phenomenon is called a tonbo/dragonfly doji, which has bullish implications.

This is because bears have attempted to depress prices, but have failed, and the price has bounced higher at close of the week. For a further upmove, follow up buying and a price above Rs 2,225 is a must.

Open long positions only if the price stays above Rs 2,225 levels on volume and open interest expansion. Market internals indicate 480% increase in turnover and 60% decline in open interest.
Mentha oil has witnessed a long-legged doji on the weekly charts and that indicates limited buying conviction at higher levels.

Sustained trade above Rs 587 will be needed to maintain the upward momentum. Initiate fresh buys when signs of strength are seen. Market internals indicate 10% increase in turnover and 4% increase in open interest.

Potato remained under pressure as I had advocated a weak trend in agri-commodities last week. The Rs 570 level will be a support area to watch this week and expect a weak outlook if the price stays below this threshold. Market internals indicate 25% increase in turnover and 8% increase in open interest.

Refined soya oil is undergoing consolidation as the weekly charts indicate a doji pattern for the second week in a row. The price range has been narrow and the Rs 440 level will be a near-term support to watch. To maintain upthrust, bulls will need to hold prices above Rs 467 on expanded volumes and open interest.
Metals

Aluminium reported higher volumes and marginal open interest erosion week-on-week, despite impeding expiry of the February series. These are optimistic indicators, but bulls will have to keep the price above Rs 99 to maintain momentum. The Rs 91.50 level is now an established and activated near-term support.

Copper led the rally in industrials and is nearing the trendline resistance, which was a support till it was violated in the week ended January 30, 2010. Weekly charts indicate the counter nearing a significant short-term high of Rs 355.

For a sustained upmove, it is important that the Rs 337 level not be violated on a closing basis this week. Market internals indicate 6% increase in turnover and 38% increase in open interest.

Gold stayed above Rs 16,675 and saw a bullish close on the weekly charts. The decline in recent weeks was not deep enough to fracture the medium/long-term uptrend and the possibility of the counter hitting Rs 17,250-17,300 in a few days cannot be ruled out. Market internals indicate 1% decline in turnover and 1% decline in open interest.

Nickel confirmed a flag formation and a measuring moving objective is in the offing on the weekly charts. Barring routine profit sales, I expect the outlook to remain firm and long positions may be maintained. The Rs 910 level needs watching in case of near-term declines.

Silver is showing signs of higher relative strength as compared to gold. For an extended upmove, the counter needs to forcefully overcome the Rs 26,000 hurdle and consistently close above this mark.

The bulls must defend the Rs 24,750 level in case of a decline and falls, if any, must be on lower volumes so as to not reverse recent optimism.

Zinc is back above the 14-month bullish trendline after a 10-day violation. That is a sign of optimism and the higher turnover adds to the weight of positive evidence. Expect the uptrend to persist as long as the price stays above Rs 105 level. Market internals indicate 13% increase in turnover and 11% decrease in open interest.

Energy
Crude oil has witnessed a resurgence in price even as US non-strategic crude reserves rose by 3.1 million barrels to hit the 334.50 m mark.

The near-term hurdle will be Rs 3,810 — unless there is forceful breakout with enhanced volumes and open interest, the rally may see halts due to profit-taking. Market internals indicate 15% decline in turnover and 30% decline in open interest.

Natural gas moved opposite to the trend in crude, as profit sales at higher levels eroded buying conviction. The expiry of the prompt month series is likely to put bulls under short-term pressure.

Avoid fresh longs as long as prices stay below Rs 238-240 levels. Market internals indicate 26% fall in turnover and 57% rise in open interest.

The columnist is the author of A Traders Guide to Indian
Commodity Markets and invites feedback at vijay@BSPLindia.com or (022) 23438482.

Fair disclosure: The analyst has exposure to nickel futures.