Action likely to stay polarised around base metals as feel-good factor persists

The markets witnessed a higher-turnover week compared with the previous one, which was truncated on account of holidays.

The Multi-commodity Exchange of India (MCX) logged an 18% increase in turnover and a 9% jump in market-wide open interest as traders enhanced their exposure.

The weekly turnover gainers were almond, cardamom, chana, copper, crude oil, crude palm oil, gold, lead, mentha oil, natural gas, potato, silver and zinc. The open interest gainers were chana, copper, crude oil, crude palm oil, mentha oil, nickel, silver and zinc.

The US non-strategic commercial crude oil inventories declined by 2.5 million barrels to the 357.4 million barrel mark but failed to lift oil prices significantly.

The action is likely to remain polarised around base metals as the feel-good factor persists.

Agri commodities
Chana has declined on news of ample monsoon and easing of agri-commodity prices. The immediate support is likely at the Rs2,090 levels, which coincides with the June 2010 lows and the same must be defended by the bulls.

A forceful violation of the same will lead to fresh falls and longs must be avoided for now. Market internals indicate a 215% increase in turnover and a 14% increase in open interest.

Mentha oil continues to surge ahead as the seasonal demand factors continue to buoy the prices. Declines are meeting short covering-cum-fresh buying and as long as the Rs750 levels hold, expect the uptrend to continue. Market internals indicate a 31% increase in turnover and an 8% increase in open interest.

Refined soya oil is showing signs of weakness as the steep declines persisted for the third week in row. The Rs465 support will be a crucial level to watch as a consistent trade below this threshold will witness a fresh round of selling. Market internals indicate a 30% decline in turnover and a 22 % fall in open interest.

Metals
Aluminium has made an inside formation on the weekly charts, coupled with a bullish piercing pattern on the weekly candle charts.

While these are indicating optimism, the same is subject to follow up buying emerging above the Rs100 levels, which must be defended on a sustained closing basis. Fresh longs are suggested only after the Rs102 hurdle is overcome forcefully.

Market internals indicate a 3% drop in turnover and a 6% decline in open interest.

Copper has made an inside formation on the weekly charts along with a weekly bullish piercing pattern on the candle charts. This replicates the formation on aluminium charts and indicates a need for follow-up buying support as the bulls need to overcome the bears. Buying is suggested above the delta inflection point of Rs364 levels only. Market internals indicate a 9% increase in turnover and a 7% increase in open interest.

Gold has rallied after a brief hiatus and logged a bullish engulfing pattern on the weekly candle charts. While this is a sign of optimism, the yellow metal still continues to underperform Silver and needs ample follow up buying to keep the momentum alive. Maintain existing longs for now. Market internals indicate a 19% increase in turnover and a 12% decline in open interest.

Nickel has rallied for the third week in a row and the metal is showing signs of clear out performance relative to its base metals peers. The Rs1,040 level will now act as a support for momentum traders and a consistent trade above this threshold will benefit longs. Market internals indicate a 5% drop in turnover and a 1% increase in open interest.

Silver continues to surge ahead and log new highs as the white metal clearly shows higher relative strength as compared to gold. The higher tops and bottoms formation will continue as long as the Rs31,100 level holds on a closing basis. Hold all longs for now. Market internals indicate a 21% increase in turnover and an 18% increase in open interest.

Zinc witnessed an inside formation on the weekly charts and managed minor gains over the previous week. The bulls are showing a lack of conviction in the near term and a consistent trade above the Rs102 levels with high volumes and open interest expansion will be a game changer. Await a breakout before buying afresh. Hold existing longs for now. Market internals indicate a 13% increase in turnover and a 5% increase in open interest.
Energy

Crude oil has made a bearish “daki” pattern on the weekly candle charts, which implies a bearish outside pattern on the western bar charts. This has bearish implications in the near term. Crude is now trading at its lowest since the week ended May 29, 2010, which is in spite of a 2.5 million barrel decline in the US non-strategic reserves. A fall below the Rs3,325 levels is a danger sign for the bulls in the near term. Defer buy decisions for now. Market internals indicate a 17% increase in turnover and a 58% increase in open interest as fresh shorts were created.

Natural gas has moved in divergence with crude oil yet again as the season factors witness a cyclical buoyancy/ stability in prices. The impeding winter in the northern hemisphere is a demand trigger and the charts are indicating a swing low at the Rs173 levels. As long as the bulls manage to defend this support, the prices may edge higher in the coming weeks. Market internals indicate a 68% increase in turnover and a 12% decline 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.

Mandatory disclosure The analyst has no exposure to any commodity recommended above