Festive season to spur trader activity in bullion

The markets witnessed a higher turnover week in spite of a higher base effect on the back of increased trader participation on hard assets. As the prices of bullion firmed up, turnover rallied and resulted in a bear squeeze, resulting in a multiplier effect.

The turnover gainers were aluminium, crude palm oil, gasoline, gold, heating oil, lead, natural gas, refined soya oil, silver, wheat and zinc. Open interest gainers were aluminium, copper, gasoline, gold, mentha oil, nickel, platinum, refined soya oil, silver and zinc. Trader activity is likely to be seen on bullion due to the impending festive season.

Agri-commodities
Chana has seen a lower bottom and tops formation for the third week in a row. The outlook is likely to remain uncertain as long as the commodity remains below the Rs 2,425 levels. A short term support is likely to be seen at the Rs 2,150 levels. Market internals indicate a 1% decline in turnover and a 8% decline in open interest.

Mentha oil has witnessed a revival and the Rs 505 level is now a short term swing low. As long as the Rs 505 level holds, the bulls may witness a short term upthrust and a logical target of Rs 538 levels on the upside. Market internals indicate a 20% decline in turnover and a 1% increase in open interest.

Potato has seen a fresh high even as the turnover was lower and open interest contracted on bull unwinding. Traders may let their profits run on existing longs and abstain from fresh exposure. Market internals indicate a 2% decline in turnover and a 8% decline in open interest.

Refined soya oil has violated a triple bottom support at the Rs 435 levels and as long as the counter remains below this threshold, expect the bulls to remain under pressure. Buying maybe contemplated only above the Rs 435 levels. Market internals indicate a 42% increase in turnover and a 75% increase in open interest as bears ramped up fresh shorts.

Metals
Aluminium has displayed an ‘outside’ formation as the weekly range was beyond the previous week’s range. The week-on-week closing was lower as the Rs 88 floor was violated intra-week. The outlook remains under pressure as long as the counter remains below the Rs 94 mark. Buying is not recommended as of now. Market internals indicate a 3% increase in turnover and a 3% increase in open interest.

Copper has seen a closing at the lower end of the weekly range and the near-term support is likely at the Rs 295 levels. Unless the Rs 317 hurdle is overcome on a closing basis, avoid initiating fresh longs. Market internals indicate a 23% decline in turnover and a 12% increase in open interest. That is a sign of fresh bear activity.

Gold has closed at its highest after the week ended February 21, 2009, which is a sign of strength. The overseas price remaining above the $1,000/ounce will be a bullish indicator. As long as the counter remains above the Rs 15,725 levels, expect the bulls to have an upper hand. The impending Diwali season is likely to be a positive trigger for the precious metal. Market internals indicate a 11% increase in turnover and a 2% increase in open interest.

Nickel has retraced 38.2% of its upthrust and is likely to see mild short-covering at the Rs 810 levels. If this level is violated forcefully, the downside is then open till the Rs 765 levels.

Fresh buys are recommended only above the Rs 925 levels on a closing basis. Market internals indicate a 2% decline in turnover and a 31% increase in open interest as bears built up short positions.

Silver has closed at a new high as the weekly bar chart shows the closing at a new inflection point. The overseas markets are way-off their lifetime highs, with the domestic price being a beneficiary of the rupee/dollar parity levels. Bulls may hold on to their longs. Market internals indicate a 5% increase in turnover and a 8% increase in open interest as bulls ramped up fresh longs.

Zinc is likely to witness a resistance at the Rs 98 levels as this hurdle is a swing reversal top as per delta trading strategies. Bulls should buy only above this hurdle and watch the support at the Rs 87 levels. Should this level hold, expect a pullback. Market internals indicate a 7% increase in turnover and a 11% increase in open interest.

Energy
Crude oil has displayed a support at the Rs 3,300 levels and as long as this level holds, the bulls may attempt to initiate fresh longs near this support. The decline in the latter half of the week was inspite of a fall in inventory by 5.9 million barrels to 337.50 million barrels.

Fresh longs are suggested above the Rs 3,450 levels on a sustained closing basis only. Market internals indicate a 16% decline in turnover and a 24% decline in open interest.

Natural gas has bounced from the Rs 118 level which will now be a swing reversal low support. As and when the counter trades consistently above the Rs 165 levels, the prospects for the bulls will improve. Market internals indicate a 23% increase in turnover and a 24% decline in open interest as bulls unwound long positions.

The columnist is the author of the book “A Traders Guide to Indian Commodity Markets” and invites feedback at vijay@BSPLindia.com or (022) 23438482.
Mandatory disclosure - The analyst has exposure to bullion recommended above