Base metals likely to record gains

The markets witnessed an eventful week as trader participation perked up. The MCX week-on-week turnover rallied 6% and the open interest gained 9%. Bullion was at the centre-stage as the US dollar experienced bouts of selling vis-a-vis the euro. Fears of bankruptcy of the Detroit automakers also triggered a flight to safety. Base metals started showing signs of some profit taking by the bears as lower levels attracted buying. The week-on-week turnover gainers were aluminium, crude oil, gold, mentha oil, refined soya oil and silver. Open interest was higher on aluminium, copper, crude oil, gold, mentha oil, potato, nickel, refined soya oil and silver. This week may see some upticks on base metals, especially if the industrial news is above expectations.

Agri-commodities
Chana has extended the decline for the third week in a row, though the declining tempo is easing. The Rs 2,020 level, which is the 2007 support, would be a level to watch this week and the coming ones and a violation of this support will be a negative indicator for this commodity. Market internals indicate a 92% increase in open interest, indicating a fresh short build-up.

Mentha oil has lived up to the bullish expectations of the previous week and traded above the Rs 550-threshold continuously, laying the foundation for an upthrust. This week may witness some profit sales as the large move may be followed by routine profit sales. As long as the commodity trades above the Rs 580-mark, the outlook will remain positive.

Refined soya oil has recorded the highest closing in 3 weeks after re-listing and that is a positive sign. The Rs 475-480 band will be a critical hurdle for short-term players and a breakout above this threshold may see some fresh buying. Market internals indicate a 48% increase in turnover and a 139% increase in open interest.

Metals
Aluminium has displayed a decline for the third week in a row. The Rs 67 levels may be assumed to be a short-term base as the peers in the base metals segment too are witnessing a bear squeeze on declines. Only a sustained trade above the Rs 73 levels will see bullishness return to the counter and adventurous traders may trade above this threshold only.

Copper has tested lows that have not been visited since June 2005 and that is a telling indicator of the sentiments prevailing on the counter. The bailout of the US auto majors may see some bear covering and the same will be confirmed by a consistent trade above Rs 146 levels. All long positions initiated by adventurous traders must be protected by a stop loss at the Rs 142 mark. 

Gold has retraced from the historical resistance/congestion pivots at the Rs 13,300 levels and unless the bulls manage to drive and keep prices above this threshold, the chances of a sustained upthrust will be sub-optimal. Downsides have been triggered due to the dollar gaining strength vis-a-vis the global basket and lower crude prices.

Drawdown potential this week will be near the Rs 12,300 levels where patient players may start initiating small-sized longs.

Nickel is at the threshold of a critical support of Rs 440 levels and any decline below this floor will witness a fresh drop in prices. Conversely, a trade above the Rs 525 levels on higher volumes will see a fresh upthrust. Watch the base metal peers for signs of direction in the coming weeks.

Silver has rallied in tandem with gold in the last fortnight and a resistance area will be the Rs 17,750 mark. Only a sustained trade above this threshold will see fresh upmoves. Declines may test the Rs 16,800 levels where signs of support must be monitored.

Zinc is showing signs of life as it manages to hold above the Rs 52 mark. This metal is showing early signs of recovery and any upthrust in the base metals segment may be led by zinc. The upsides may test the Rs 56 levels and Rs 51 will act as a support. Traders may hold longs and initiate fresh positions provided the price shows signs of staying above the Rs 52-mark.

Energy
Crude oil has failed to respond favourably to the OPEC output cut, underscoring the weak sentiments for the commodity in the near term. The long-term oscillators are indicating the commodity trading in the oversold territory where patient far-month investors may start initiating longs on declines. The $30-32 band will be a litmus test for the immediate outlook. Fresh upmoves will sustain only if the price stays above the Rs 2,150 levels with forceful volumes.

Natural gas has fallen in tandem with crude oil and has plumbed to lows not seen since September 2007. The Rs 275-280 band will act as a resistance on the upsides and only a consistent trade above this level will be needed to trigger fresh buys. A decline to Rs 245 levels isn’t ruled out.

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