Commodity Markets                   Apr 29, 2012

 
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Apr 22, 2012

INR to push hard assets higher
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The markets witnessed a lower turnover week as the traders displayed caution on industrial commodities. The week-on-week market wide turnover on the MCX fell by 2 %. The market wide open interest fell by 2 %. The MCX turnover gainers during the week were  Aluminium, Cardamom, Copper, Cotton, Crude Oil, Lead, Mentha Oil and Potato. The open interest gainers were Cardamom, Cotton, Crude Oil, Gold, Lead, Mentha Oil, Natural Gas, Nickel and Zinc. The US non strategic petroleum reserves were higher by 3.9 mn barrels, at the 369 mn barrel mark. The base metals segment is showing promise as the summer season is cyclically a bullish period for industrial commodities, due to increased production activity after the snow thaw in the western nations. The INR is weakening against the USD, which will be a further bullish trigger for hard assets as prices may rise faster than in international markets due to the currency conversion factor.
 
Weekly pivots - MCX
Commodity Close Open Int Resistance Support
         
Aluminium - Apr 106.80 6926 108 104
Copper - Apr 425.35 29262 438 396
Gold - Jun 28701.00 10697 29045 28086
Lead - Apr 110.00 9185 113 102
Nickel - Apr 930.50 14691 966 886
Silver - May 56518.00 15446 57763 54637
Zinc - Apr 104.95 3406 107 101
         
Crude - May 5444.00 27853.00 5595 5139
Nat Gas - Apr 100.70 38910.00 109 96
         
Cardamom - May 1147.40 8193.00 1330 1078
CPO - Apr 622.30 2441.00 632 604
Mentha Oil - Apr 1993.20 5049.00 2747 1705
Potato - May 1070.20 826.00 1173 1024
SugarMKol - May 2911.00 16.00 3018 2634

Agri Commodities

 
Mentha Oil has collapsed sharply as the weekly close is at it's lowest after week ended Mar 03 2012. The price has fallen with lower circuits on the way down, which indicates a free fall, interspersed with minor technical rallies. With the onset of summer, prices tend to decline cyclically, but the recent extended rally has resulted in a sharper fall as well. Avoid bottom fishing on the counter. Market internals indicate a 1 % increase in turnover and a 8 % increase in open interest.

Potato has seen a positive closing on a w-o-w basis but the closing has been negative and indicate a potential island reversal, which will be confirmed if the price stays below the 1070 level in the coming week/s. Desist from fresh longs for now. Market internals indicate a 3 % increase in turnover and a 9 % decrease in open interest.


Sugar K Kol has rallied as per expectations but the poor volumes and trader interest indicates a high impact cost as price discovery is inefficient. Patient traders may attempt to buy on significant declines only. The 2725 level will be a support to watch. Market internals indicate a 8 % decrease in turnover and a 83 % decrease in open interest.
 
Metals
 
Aluminium is showing signs of a potential pullback rally, which will be confirmed after the bulls overcome the 108 levels sustain ably. The traded volumes and outstanding open interest should preferably rise in tandem with the price, to improve the chances of a sustainable upthrust. A decline below the 105 mark will indicate weakness. Market internals indicate a 9 % increase in turnover and a 14 % decrease in open interest.

Copper has rallied in tandem with it's peers and registered a bullish piercing pattern on the weekly candle charts. Should follow up buying continue in the coming week, there could be further upsides to the 435 levels. Hold existing long positions as long as the closing price stays above the 422 levels. Market internals indicate a 2 % increase in turnover and a 19 % decrease in open interest.

Gold has rallied for the third week in a row and the 28850 level will be a resistance to watch out for in the coming week/s. If the bulls push the price above this threshold forcefully with addition in open interest, fresh upsides to the 29000 levels cannot be ruled out totally. The 28400 level will be a support area to watch. Market internals indicate a 1 % decrease in turnover and a 2 % increase in open interest.

Nickel is witnessing a multiple support area near the 900 mark and as long as this support holds, expect the bulls to initiate longs near this floor support. Above the 945 levels, the rally may witness a short squeeze that can trigger a short term price spike. Market internals indicate a 1 % decrease in turnover and a 6 % increase in open interest.

Silver has logged gains in line with Gold but in relative terms, the upthrust has lacked the same strength. For the counter to rally with strength, the 57000 resistance must be overcome with forceful volumes and open interest expansion. On the flip side, the bulls must defend the 55750 level in case of a decline, below which the price may decline further. Market internals indicate a 15 % decrease in turnover and a 10 % decrease in open interest.

Zinc has closed at it's highest weekly close after week ended Mar 03 2012. The 105 level will be a critical hurdle to watch out for, as long as the price stays above this resistance, the bulls may enhance positions. There is a likelihood of increased volatility around this price point and traders should take a measured exposure till the price stays convincingly above this threshold. Market internals indicate a 3 % decrease in turnover and a 12 % increase in open interest.
 
Energy
 
Crude Oil has rallied inspite of the rising inventory in the US non strategic reserves, and part of the rally has been due to the cost of carry. That the economic data too has been optimistic also cushioned the downsides. For a sustained upthrust, the price should stay above the 5375 levels to indicate strength. Market internals indicate a 14 % increase in turnover and a 15 % increase in open interest.

Natural Gas continues to plumb lower and is back to a negative price correlation with Crude Oil. The sustained decline in the price is indicating a lack of buying support and unless we see a positive weekly close, fresh longs are ruled out. Market internals indicate a 6 % decrease in turnover and a 1 % increase in open interest.

Vijay L Bhambwani
(Ceo - BSPLindia.com)

The author is a Mumbai based investment consultant and invites feedback at vijay@BSPLindia.com or 9323720291.


Mandatory disclosure
- the analyst has no exposure commodities futures mentioned above.

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