Industrial commodities to rise on positive US news

The markets witnessed an eventful week for industrial metal players as hopes of an economic revival kept spirits and prices higher. As was advocated last week, the base metals pack led the upthrust even as bullion was subdued. The China factor drove up copper inspite of fundamentalists warning of a trend reversal. Bullion lost steam as risk appetite expanded and resources shifted to high-risk assets like equities and leveraged products.

That trend is likely to persist in the near term. Watch the data points emerging from the US this week. Positive / neutral outlook will mean higher industrial commodity prices. The energy complex is also likely to be a gainer as prices are hardening inspite of escalating non-strategic US petroleum reserves, which have crossed the 361 million barrel mark.

Last week being a truncated one, volumes fell 40% on the MCX, whereas the open interest rose 5%. These are indicators of the return of the buy-and-hold players.

Agri-commodities
Chana is undergoing consolidation as higher levels are attracting selling. The Rs 2,400 level is a critical hurdle for this counter as it is a multiple inflection point resistance. Previous reversals have occurred here and a gap is seen on the weekly charts at this threshold. Unless this hurdle is overcome forcefully, lay off fresh buying. Market internals indicate a 22% increase in open interest.

Mentha oil is also seeking direction as the Rs 540 level is acting as a near-term support for momentum traders. The Rs 580 level will be a stiff resistance in the near term and only a breakout above this threshold will indicate a fresh buy. Market internals indicate a 49% decline in turnover and a 1% decline in open interest.

Potato has seen an inside formation as the weekly range is within the previous week’s range. While the weekly closing is higher, profit sales at higher levels is palpable. Avoid fresh buying. Market internals indicate a 42% decline in turnover and a 22% decline in open interest.

Refined soya oil has seen a forceful breakout past the 10-week highs. The big upthrust may be followed by some profit sales and resumption of the uptrend. Buying is suggested only if the price sustains above the Rs 485 level. Market internals
indicate a 7% decline in turnover and a 14% increase in open interest. These are signs of a fresh long build-up.

Metals
Aluminium is making a saucer formation and the Rs 79 level will be a last-mile hurdle for the bulls to overcome. Should the counter manage to trade above this hurdle consistently, expect the bear covering itself to lift values. Market internals indicate a 19% decline in turnover and a 2% decline in open interest.

Copper has lived up to the previous week’s expectations and target of Rs 235. The upmove has been inspite of worries about the sustainability of the upthrust. The strength on the Shanghai futures exchange has been percolating down to the world markets as the speculative positions are built up. The Rs 226 level will be a short-term trend reversal threshold below which the bulls may suffer a temporary disadvantage. Existing longs may be held with a trailing stop loss; fresh longs are to be avoided for now.

Market internals indicate a 16% decline in turnover and a 16% decline in open interest.
Gold is witnessing consolidation as the Rs 14,000 mark is acting as a support that the bulls have managed to defend. Should this threshold be violated, fresh selling may emerge. On the flip side, buying is likely to emerge above the Rs 14,375 level, provided the volumes and open interest spurt in unison. Market internals indicate a 52% decline in turnover and a 3% increase in open interest as fresh shorts were added.

Nickel has seen the quietest movement within its peer group though the net field range has skyrocketed. To traders using the CBot concept, these are bullish signs and buying may be initiated above the Rs 565 level if the upthrust is on high volumes. The next hurdle will be at the Rs 590 level. Market internals indicate a 28% decline in turnover and a 17% increase in open interest.

Silver has seen weakness in tandem with gold and the weekly closing is at its lowest since the week ended February 07, 2009. Unless the Rs 21,750 level is overcome forcefully, do not initiate fresh longs. Market internals indicate a 42% decline in turnover and a 20% increase in open interest.

Zinc is likely to witness a fleet footed upthrust as long as the price breaks out above the Rs 70 level and stays above this threshold with higher volumes. The commodity has made an inverse head and shoulder formation and the outlook is bullish, barring unforeseen circumstances. Market internals indicate a 23% decline in turnover and a 20% increase in open interest.

Energy
Crude oil has failed to close above the Rs 2,700 threshold yet again as this hurdle has proved to be an insurmountable barrier for the bulls. The upticks inspite of higher inventories indicate strength in the undertone, which will be reversed below the Rs 2,480 levels. Buying is recommended above the Rs 2,700 levels if the upthrust is forceful. Market internals indicate a 25% decline in turnover and a 20% increase in open interest.

Natural gas has plunged for the third week in a row with a build-up in open interest. A trend reversal will be signalled above the Rs 198 level. Bulls should avoid buying till this hurdle is overcome. Market internals indicate a 20% decline in turnover and a 60% increase in open interest due to fresh short sales.

Mandatory disclosure: The analyst has no exposure to any commodities recommended above.  The writer is a Mumbai-based investment consultant.