Industrials likely to extend gains so long as outlook remains sunny

The markets witnessed a lower turnover week as the high base effect and with weakness in bullion saw withdrawal of retail participation. The US economic numbers were above expectations, which lead to strength in the dollar, which in turn caused a domino effect of profit sales on bullion. Industrial metals recovered in the latter half of the week as hopes of economic recovery caused buying. The turnover gainers during the week were aluminium, heating oil, natural gas, refined soya oil, steel (GZB) and wheat. Open interest (OI) gainers were almonds, aluminium, cardamom, crude oil, gasoline, gold, lead, platinum, refined soya oil, silver and soybeans. This week is likely to be news-driven as the markets will look forward to the housing starts, crude inventory, jobless claims and consumer price index, as also the announcement by the Fed. Industrials are likely to extend their recent gains as long as the economic outlook remains sunny. Agri-commodities Chana is witnessing profit sales and the next support base may be near the Rs 2,450 levels. Watch this area for signs of buying support. Contemplated fresh buying only above the Rs 2,690 levels, and that too if the upthrust is on high volumes and open interest expansion. Market internals indicate 20% decline in turnover and 13% decline in open interest. Mentha oil witnessed a breakdown as the Rs 602 support was violated on a closing basis. As long as the commodity remains below this threshold, expect the bears to remain in charge. Avoid fresh buying for now. Refined soya oil fell to four-week lows. The counter is likely to close an open gap between the Rs 464-470 band, left open during the upthrust a month ago. Any decline past this will indicate fresh weakness. Defer buying till the Rs 498 hurdle is overcome. Market internals indicate 18% increase in turnover and 138% increase in open interest as bears pressed fresh sales. Metals Aluminium reaped the benefits of the cup-and-handle chart formation that I had advocated in recent weeks. Having outperformed its peers in the base metals brigade, some profit sales cannot be ruled out. However, the same may be routinely corrective in nature. Bulls may hold longs as long as the Rs 102 level holds on a closing basis. Copper saw attrition on a week-on-week basis even as the weekly charts indicate an 'inside formation', as the week's range was within the previous weekly range. These are indicators of a bigger move in the offing in either direction. The Rs 315 level is a trendline support that needs watching this week for fresh buying support. Market internals indicate 10% decline in turnover and 14% decline in open interest. Gold witnessed a sharp decline as profit sales by global investors bore down on sentiments. Safe-haven buying was absent even at lower levels and alternate asset classes saw relative preference as risk appetite broadened. Bulls should watch the Rs 16550 and then the Rs 16250 level this week as the next support area for buy opportunities. Market internals indicate 3% decline in turnover and 6% increase in open interest as bears pressed fresh shorts. Nickel saw a rebound as the Rs 732-737 band is now an established and activated support on the weekly charts. A sustained trade above the Rs 800 levels is critical for bulls, failing which, the rally risks petering out. Contemplate fresh buys only after the Rs 800 mark is overcome forcefully. Silver witnessed profit sales in tandem with gold and the next support is likely to be at the Rs 25750 levels, where fresh buying may be considered subject to volume and open interest combination. This metal has a likelihood of outperforming gold in the coming weeks as its relative strength comparative is higher than that of gold. Patient players may contemplate buying on dips. Market internals indicate 3% decline in turnover and 16% increase in open interest. Zinc too witnessed an inside formation as the weekly range was truncated in comparison to the previous week. That implies a bigger move in the offing. Bulls will have an upper hand once the Rs 112 top is overcome; bears will return below the Rs 102 support. Initiate fresh trades only after a breakout or breakdown is seen. Energy Crude oil witnessed a sharp decline as the dollar strengthened and profit sales pummelled prices. The depletion in the US non-strategic reserves was overlooked and so was the US-Iran rhetoric. Lower levels may see buying support at the Rs 3125 / Rs 3050 levels, where fresh activity triggers may be seen. Market internals indicate 3% decline in turnover and 90% increase in open interest as bears pressed fresh sales. Natural gas is showing a divergence from crude oil as global activity in this fossil fuel is stepping up. With the emphasis on emission cuts, gas is likely to enjoy precedence over oil, and therefore the buoyancy in prices. The approaching winter in the western world is another demand trigger. Bulls are likely to retain their initiative as long as the prompt month's futures remain above the Rs 245 levels. Market internals indicate 15% increase in turnover and 12% decline in open interest. The columnist is the author of A Traders Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com or (022) 23438482.