Commodity Analysis

Bulls losing strength in crude oil

Akhil Nallamuthu | Updated on November 15, 2020 Published on November 15, 2020

The December futures on MCX declined on Thursday and Friday, casting doubts over the price moving up further

Commodities were largely bullish last week. Except precious metals, all other commodity groups gained. Thus, the iCOMDEX composite index on the Multi Commodity Exchange (MCX) moved up over the past week. Energy commodities were the largest gainers, especially crude oil.

Going ahead, the index might advance further as the outlook for most of the commodities looks positive. A rally in the prices of gold and crude oil, the two largest components of the composite index, can lift it sharply.

MCX-Crude (₹3,040)

The December futures contract of crude oil on MCX,which rebounded sharply after a decline, extended the gain during the last week as well. Consequently, the price moved above 21- and 50-day moving averages (DMAs) and the important resistance of ₹3,000. However, on Thursday and Friday last week, the contract was down, raising questions over the ability of the bulls to take the price further northwards.

The daily Relative Strength Index (RSI), though above the midpoint level of 50, has come off from its recent high, hinting at weakness. Similarly, the moving average convergence divergence (MACD) indicator in the daily chart, though tracing an upward trajectory, is showing signs of bulls weakening.

For the contract to establish a rally, it should rally past ₹3,100. Hence, traders can wait for now and go long in the contract with stop-loss at ₹3,000 if it breaches ₹3,100. Resistance levels above ₹3,100 are at ₹3,250 and ₹3,300.

MCX-Gold (₹50,922)

The December futures contract of gold on MCX, which was moving in a sideways trend between ₹50,000 and ₹51,400 for a month, attempted to break out of the range before two weeks. However, the rally could not sustain and as a result, the contract fell sharply after marking a high of ₹52,520.

Nevertheless, the major trend is bullish and so, on the back of the support of ₹50,000, the contract inched up in the past few trading sessions and closed last week a little shy of ₹51,000. At this level, the 21-DMA and 50-DMA coincide. Despite volatile price action, the RSI and the MACD indicators on the daily chart remains flat.

Even though the contract currently looks sluggish, the overall trend is bullish and so, traders can take a positive view. But initiate fresh long positions if only the contract decisively breaks out of ₹52,000; stop-loss can be at ₹51,000. Above ₹52,000, it can rise to ₹53,800.

MCX-Silver (₹63,608)

The price movement of the December futures contract of silver on MCX has been similar to gold. That is, the contract, which was treading through a horizontal path between ₹60,000 and ₹64,000, broke out of the range in early November. However, it ended up being a false breakout and the contract has now come back into previous trading range.

Since the trend has remained flat for over a month, the daily RSI and the MACD indicators are flat as well. However, the major trend is bullish, and it will remain so until the contract stays above the support of ₹60,000.

Considering the prevailing price action, trader can stay on the fence now and go long if it decisively breaches the resistance at ₹66,500; stop-loss can be maintained at ₹64,000. A breakout of ₹66,500 can take the contract to ₹70,000, a key barrier, and possibly to ₹73,000.

MCX-Copper (₹540.8)

After a corrective decline, the November futures contract of copper on MCX has inched up by taking the support of ₹525. The 21-DMA has also been acting as a cushion for the contract. Moreover, the major trend is bullish, and the price stays above 21-DMA, indicating a positive outlook.

The price action hints at a renewal of the uptrend and the contract is likely to register fresh highs in the upcoming trading sessions. Corroborating the bullish bias, the daily RSI is showing a fresh uptick and its stays above the midpoint level of 50; the MACD indicator too is indicating fresh positive signs.

Hence, traders can be positive and initiate fresh long positions in declines with stop-loss at ₹525. On the upside, the contract can touch ₹550 in the short-term.

A breakout of that level can lift the contract to ₹560. Supports from the current level are at ₹525 and ₹510.

NCDEX-Soybean (₹4,480)

The December futures contract of soyabean on the National Commodities and Derivatives Exchange (NCDEX) has been rallying since early October. But it entered a consolidation phase before a couple of weeks and started to fluctuate between ₹4,250 and ₹4,415. Nonetheless, the stock stayed above the 21-DMA and retained the bullish bias.

Following this, the contract broke out last week and closed above the upper boundary of the range at ₹4,415, opening the door for further strengthening. Supporting the positive outlook, the daily RSI is showing a fresh uptick and remains above the midpoint level of 50. Moreover, the MACD indicator hovers in the positive region.

On the back of above factors, traders can initiate fresh long positions in the contract with stop-loss at ₹4,340.

A rally from here can take the contract to ₹4,600 and if the momentum sustains, it can touch ₹4,650.

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Published on November 15, 2020
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