Supply-side constraints to keep agri-commodities buoyant

The markets witnessed a lower turnover week as the high base effect and weakness in industrials impacted trader participation. The action shifted to bullion as the RBI's purchase of 200 tonnes lifted global sentiments. As was expected last week, agri commodities led the upthrust from the front and the supply constraints are likely to keep the buoyancy intact in the short/medium term. The week-on-week turnover gainers were crude palm oil, gold and refined soya oil. Open interest gainers were aluminium, cardamom, chana, copper, crude oil, crude palm oil, gold, lead, natural gas, nickel, refined soya oil, tin, wheat and zinc. The market wide turnover was 6% lower and the open interest was 12% higher as bears pressed sales on industrials. This week may see pressure persisting on industrials which may remain subdued, unless the dollar weakens or short covering lifts values. Agri-commodities Chana has recorded its highest weekly close after week ended April 12, 2008, which is a positive indicator. Should the commodity stay above the Rs 2,575 levels on higher volumes and open interest expansion, expect this counter to rally further in the coming weeks. On declines, support is likely to be seen at the Rs 2,500 levels where short covering maybe vigorous. Market internals indicate a 26% decline in turnover and a 21% increase in open interest as bulls resorted to a buy-and-hold strategy. Mentha oil will be bullish above the Rs 540 levels alone and a breakout with higher volumes and open interest expansion must be awaited before initiating fresh longs. The Rs 505 level will be trend line support to watch in the coming weeks. Market internals indicate a 41% decline in turnover and a 12% decline in open interest. Refined soya oil has been making higher tops and bottoms as agri-commodities remain bullish on the back of supply-side constraints. As long as the counter remains above the Rs 455 mark, expect the upthrust to remain in force. The overhead resistance is likely to be seen at the Rs 485 levels. Market internals indicate a 24% increase in turnover and a 26% increase in open interest as bulls ramped up exposure. Metals Aluminium has slid below its previous week's range and into the bearish channel which it appeared to break out of. Should the metal trade below the Rs 88 levels, expect the weakness to extend and the counter to slip even further down. Bulls should contemplate purchases only above the Rs 94 levels as and when the upthrust is on higher volumes and open interest expansion. Market internals indicate a 55% decline in turnover and a 21% increase in open interest as fresh shorts were built up. Copper has seen a second week of declines as the week-on-week closing was lower and the US jobs report spooked the bulls. The late rally in the dollar also prompted selling and the Rs 298 level will need watching as a trend line support. A forceful decline below this threshold will see the bears returning with strength. Market internals indicate a 7% decline in turnover and a 3% increase in open interest as bears ramped up fresh shorts. Gold has seen a strong breakout above an ascending triangle which I had mentioned last week. Once a consistent close above the Rs 16,100 level was achieved, bulls were firmly in charge. The Rs 16,100 level will now be the support on declines and the medium-term target will be the Rs 17000 + levels, under conducive market conditions. Market internals indicate a 16% increase in turnover and a 27% increase in open interest as bulls stepped up their exposure. Nickel has seen weakness as the recent top made at the Rs 918 level is significantly lower than the August 2009 top at Rs 1,022. Should the Rs 796 level be violated with force, expect the outlook to weaken further. Fresh buying should be delayed for now. Market internals indicate a 31% decline in turnover and a 92% increase in open interest as bears stepped up fresh shorts. Silver is appearing firm in tandem with gold and a consistent trade above the Rs 27,750 will take it past the recent top at the Rs 27,960 into blue sky territory where all longs will turn profitable and shorts will be squeezed. The Rs 26,650 will be an immediate floor. Market internals indicate a 7% decline in turnover and a 17% decline in open interest as higher levels attract profit sales. Zinc has reacted lower in tandem with its base metal peers and as long as the counter stays above the Rs 100 mark, bears may be cautious. A forceful violation of this threshold will see a decline as fresh shorts may be opened up. Market internals indicate a 40% decline in turnover and a 24% increase in open interest as shorts were added. Energy Crude oil has slipped after the US jobs report unnerved the bulls into surrendering long positions even as the strong dollar added to woes. The outlook for the bulls will remain cautious till the counter does not cross the Rs 3,800 levels forcefully and close above it consistently. Should declines extend, the Rs 3,525 level maybe tested too. Market internals indicate a 4% decline in turnover and a 16% increase in open interest as bears added fresh shorts. Natural gas has seen a profit-taking bias and the Rs 205 level is the immediate support to watch out for. Only a sustained trade above the Rs 245 levels forcefully will see accelerationon the upsides. This counter may seek cues from crude oil prices in theimmediate future. Market internals indicate a 15% decline in turnover and a 69% increase in open interest as bears added shorts.