Signs of de-leveraging in hard assets

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The markets witnessed a higher turnover week as the traders displayed higher risk appetite for industrial commodity trades. The week-on-week market wide turnover on the MCX rose by 23 %. The market wide open interest rose by 2 %. The MCX turnover gainers during the week were Aluminium, Cardamom, Copper, Cotton, Crude Oil, Crude Palm Oil, Gold, Lead, Mentha Oil, Nickel, Potato, Silver and Zinc. The open interest gainers were Cardamom, Cotton, Copper, Crude Oil, Gold, Lead, Natural Gas, Potato and Silver. The US non strategic petroleum reserves were lower by 2 mn barrels, at the 373.10 mn barrel mark. With the US presidential election being the big event in the coming days, markets will seek triggers in the coming near term. Initiate all fresh trades on lower volumes only.

Weekly pivots - MCX

Commodity	Close	Open Int	Resistance	Support

Aluminium - Nov	104.2	5536	109	98
Copper - Nov	416.95	37049	431	410
Gold - Dec	30498.00	21760	31649	29876
Lead - Nov	113.60	9489	121	103
Nickel - Nov	868.00	34360	913	829
Silver - Dec	57599.00	22112	62146	55587
Zinc - Nov	100.30	13788	105	93

Crude - Nov	4609.00	46382	4781	4532
Nat Gas - Nov	193.20	21204	221	181

Cardamon - Nov	765.90	4110	908	709
CPO - Nov	428.50	5667	447	419
Mentha Oil - Nov	1175.00	3963	1239	1130
Potato - Mar	730.00	454	753	717

Agri Commodities

Mentha Oil has been creeping higher in anticipation of winter (a demand expansion period) and has been heading towards the breakout level of 1220, above which the bulls will have the initiative in the market place. A breakout when it does occur, must be on forceful volumes and open interest expansion to rope in the fence sitters on the long side. Market internals indicate a 36 % increase in turnover and a 18 % decrease in open interest.

Potato is showing signs of seeking a bottom and the 700 psychological threshold is likely to hold for now. Await signs of accumulation on declines and initiate fresh longs thereafter. Market internals indicate a 162 % increase in turnover and a 5 % increase / decrease in open interest.

Metals

Aluminium has attempted to rally higher as the prices approached the marginal costs of production and value buyers stepped in to lend support. The 102 swing low remains an important swing low to watch out for and the bulls must defend this threshold actively if the trend is to reverse. A breakout confirmation will be received only above the 107 levels. Market internals indicate a 64 % increase in turnover and a 25 % decrease in open interest.

Copper has been declining after breaching the previous swing low at the 430 level. The fortnight old downtrend can witness some support at the 410 levels where a temporary bounce may occur. In case this support is violated forcefully, expect further downsides. Avoid bargain buying for now. Market internals indicate a 32 % increase in turnover and a 2 % increase in open interest.

Gold has been declining in a lower tops and bottoms formation for 3 weeks in a row and that indicates an easing in the safe haven buying support in the near term. Watch the 30100 level as a near term support from where a minor pullback can occur. The impeding Diwali season buying and the INR can be factors that may cushion the declines partially in the coming week. Market internals indicate a 40 % increase in turnover and a 16 % increase in open interest.

Nickel is approaching the 845 level which is expected to be a short price support which needs watching. Should the bulls manage to defend this threshold, a minor pullback maybe expected in the near term. A forceful and sustained decline below the 840 level may deepen the fall. Market internals indicate a 31 % increase in turnover and a 9 % decrease in open interest.

Silver has recorded lower tops and bottoms formation for 7 consecutive weeks in a row and that underscores the weakness in the sentiments. The above expectation US jobs data triggered an unwinding bias as the US $ remained steady ahead of the US presidential elections. Upward momentum will return only above the 60400 levels and unless the price breaks out above this threshold, fresh buys are ruled out for now. Market internals indicate a 25 % increase in turnover and a 24 % increase in open interest.

Zinc has displayed a bullish engulfing pattern on the weekly candle charts and an outside pattern on the weekly bar charts. These are early signs of a possible bottom formation on the charts. A confirmatory breakout above the 102 level and a consistent trade above this threshold thereafter will be required to trigger a high probability buy. A decline below the 96 level will deepen the downside. Market internals indicate a 33 % increase in turnover and a 38 % decrease in open interest.

Energy

Crude Oil has been cushioned from steep declines due to the declining non strategic commercial reserves in the US, storm Sandy and geopolitical concerns. The 4600 level does offer a feeble support, though the 4550 level would be a better support and offer a lower probability for decline as compared to the 4600 mark. The pullback, if any, can be brief and reverse abruptly, so fresh longs if any, should be on very small volumes only. Market internals indicate a 1 % increase in turnover and a 12 % increase in open interest.

Natural Gas has witnessed a bearish engulfing pattern as the bears over powered the bulls in the near term. The bulls are likely to return to a dominating position only above the 205 levels and a consistent close below the 186 level may trigger further declines. Market internals indicate a 15 % decrease in turnover and a 10 % 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.