Profit sales in industrials likely; downside may not be sizeable

The markets witnessed a steady turnover last week as profit sales in hard assets resulted in trader withdrawal to a small extent. The week-on-week turnover on the MCX was almost unchanged. The turnover gainers were aluminium, chana, copper, crude oil, natural gas and potato. The open interest gainers were copper, gasoline, gold, lead, mentha oil, silver and zinc. The trader interest is likely to remain polarised around energy counters, with precious metals and base metals bringing up the rear within the hard assets space. Profit sales in industrials may continue, but downsides may not be sizeable unless some new triggers are unearthed. Watch the US dollar versus the euro for signs of trends on the precious metals.

Agri commodities
Chana has witnessed an inside formation on the weekly charts and unless the Rs 2,420 top is overcome forcefully, the bulls are likely to lack conviction on fresh buys. The Rs 2,250 level is a bottom to watch out for and should this floor be violated, expect downsides. Market internals indicate a 14 % increase in turnover and a 44 % decline in open interest.

Mentha oil has displayed an inside formation as the weekly range was within the previous weekly range. The thinner volumes display a lack of trader interest as prices get enmeshed in a tight range. Only a breakout/drawdown beyond the Rs 530/Rs 505 levels respectively will provide fresh directional triggers.

Potato has surged significantly as supply-side constraints have lifted trader interest on this counter. Accompanied by higher open volumes, this rally is likely to persist, along with occasional bouts of profit sales. As long as the Rs 1,300 mark holds, expect more upsides. Market internals indicate an 80% increase in turnover and an 8% decline in open interest.

Refined soya oil has seen a bounce from the double-bottom support at the Rs 418 levels and as long as this level holds, bulls may attempt to enhance commitments. A forceful rally past the Rs 445 level will be a buy trigger for the momentum players and fresh longs may be added on confirmation.

Metals
Aluminium has made a swing reversal bottom at the Rs 87 levels and as long as this level holds, the possibility of consolidation/upmove cannot be ruled out. The bulls are likely to be aided by a rally past the Rs 94 levels with high volumes and open interest expansion, and are advised to defer fresh buys till such a breakout occurs. Market internals indicate a 1% increase in turnover and a 3% decline in open interest.

Copper has faltered as follow-up buying at higher levels has evaporated and the oscillators indicate a further downside as a possibility. The Rs 315-318 band is a critical hurdle and unless it is overcome, bulls should avoid fresh buys. Downsides may test a trend line support at the Rs 280 levels.

Gold has exhibited a gravestone doji on the weekly candle charts and that is unwelcome news for the momentum bulls. With the Rs 16,000-Rs 16,050 band proving to be a stiff resistance for the bulls to overcome, the buying is likely to be thin unless this obstacle is overcome forcefully. The Rs 15,500 level will act as a cushion on declines in the absolute short-term.

Nickel is showing early signs of bouncing back, which will be confirmed by twin factors — price should stay above the Rs 800 mark in case of declines and above the Rs 850 mark in case of advances if the momentum is to return on the long side in the absolute near term.

Silver has indicated week-on-week gains as a relative outperformance of gold as the ascending triangle on the weekly chart suggests. The bulls must defend the Rs 26,350 levels this week, especially on a closing basis if the momentum is to remain positive. More patient players may even be liberal as a draw down level as the medium/long-term outlook remains positive.

Zinc is showing week-on-week gains too and is likely to remain bullish as long as the Rs 88 level holds. The outlook for this metal will be loosely linked with that of nickel and aluminium to a degree as the chart patterns, as per non-conventional charts, suggest similarities. If the bulls manage to keep this counter above the Rs 92 level consistently in this week, expect more upsides.

Energy
Crude oil has seen a support base emerging at the Rs 3,325-Rs 3,350 band and as long as this floor holds, expect the bulls to have a fighting chance to push prices higher. The impeding winter months and the anticipated demand surge is likely to act as positive trigger for ‘black gold’.

The US commercial, non-strategic petroleum reserves declined by 4.7 million barrels to 332.8 million barrels. That is a positive indicator for bulls for now. Above the Rs 3,555 levels, the acceleration may gather momentum as shorts get squeezed.

Natural gas has rallied for the second week in a row as the overseas markets witnessed a surge in prices. For a variety of reasons ranging from winter demand, supply-side constraints and higher offtake due to a lower carbon footprint, investor/trader interest is likely to be high. As long as the cost of carry remains as high as it is now, expect curtailed buying.