Commodity Analysis

Crude looks set for a downturn

Akhil Nallamuthu | Updated on August 02, 2020 Published on August 02, 2020

While energy commodities turned out to be a drag, most of the metals were up last week

Precious metals witnessed a strong rally last week, and as a result, the iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), gained nearly 3 per cent.

While most of the metals were up, energy commodities turned out to be a drag. Gold, silver, and zinc (together contributing 33 per cent to the index) were the top performers in the past week, gaining over 5 per cent each.

MCX-Crude (₹3,023)

The price of crude oil rose in May and June, and subsequently entered a consolidation phase.

The August futures of crude oil on the MCX has largely been trading between ₹2,980 and ₹3,180 since the beginning of July; until it steps out of the range, the trend will remain uncertain. The 50-day moving average (DMA) coincides at ₹2,980, making it a strong support.

Even though the price stays within the range, there are signs of bears cranking up to drive the price lower. The daily relative strength index (RSI) has slipped below the midpoint level of 50, whereas the moving average convergence divergence (MACD) indicator in the daily chart has been sliding lower.

While the above conditions seem to be setting the stage for a downtrend, the support at ₹2,980 can play spoilsport for sellers. That said, traders can go short on the contract if the price breaks below ₹2,980. The stop-loss can be at ₹3,180.

MCX-Gold (₹53,445)

Gold has been charting new highs lately. The October futures contract marked a fresh high of ₹53,700 on Friday before closing the week at ₹53,445.

On the back of the major bull trend, it gained about 5.5 per cent last week, making it one of the best-performing commodities on the MCX.

Substantiating the positive outlook are the RSI and the MACD. Both the indicators are in their respective bullish zones and do not hint at any weakness for now. But the RSI has just entered the over-bought levels.

However, it is not an outright signal of a trend-reversal. Bearing in mind the price action and the risk-reward ratio, rather than buying the contract at the current levels, traders can either buy with a stop-loss at ₹51,875 if the price softens to ₹53,000 or buy with a stop-loss at ₹52,900 if the price breaks out of ₹53,700. The contract might advance to ₹55,000.

MCX-Silver (₹64,984)

The September futures of silver gained a little over 6 per cent last week, making it the top-performing commodity on the MCX. It also registered a new high of ₹67,560; the overall trend remains bullish. But in terms of the intra-week price action, the contract saw a sideways trend between ₹61,800 and ₹66,500.

Though the daily RSI has come off its peak, it largely remains flat. The moving average convergence divergence indicator in the daily chart has been on the rise and retains positive trajectory — a bullish indication.

Even though the trend is bullish, traders can wait and initiate fresh long position with a stop-loss at ₹60,400 if the price moderates to ₹62,000 or initiate a buy with a stop-loss at ₹64,000 if the price rallies past ₹66,500. The contract might rally to ₹68,300.

MCX-Copper (₹508.8)

Copper has been one of the best- performing commodities in the recent past. The August futures contract, which was hovering around ₹400 in mid-April has rallied above ₹500.

The price breached the resistance of ₹500 a couple of weeks ago, and the contract has managed to sustain above it.

That said, the contract has trended sideways between ₹500 and ₹510, particularly in the last week. While this may not immediately end the uptrend, those on the long side of the trades should not rule out the possibility of a minor correction, may be to ₹490.

Notably, the RSI and the MACD are showing signs of weakness.

Since the overall trend is bullish, traders can go long if the bulls regain traction, and buy the contract with a stop-loss at ₹500 if the price decisively breaches the resistance of ₹510. Above ₹510, it can advance to ₹520 and ₹525.

NCDEX-RM seed (₹5,033)

The August futures of RM seed (mustard seed) on the National Commodities and Derivatives Exchange (NCDEX) had been steadily gaining since early April.

But in July, it began to trend sideways, oscillating between ₹4,665 and ₹4,800. Following this, the contract decisively breached the resistance of ₹4,800 last week.

Moreover, it settled above the important level of ₹5,000.

Corroborating the bullish bias, the daily RSI is showing a fresh uptick and lies above the midpoint level of 50.

Also, the MACD indicator in the daily chart, which was flat, turned its trajectory upward last week. As the major trend is bullish, it is highly likely that the contract will extend the rally from the current levels. Hence, traders can initiate fresh long positions on declines with a stop-loss of ₹4,900. On the upside, it can rally to ₹5,150.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on August 02, 2020
This article is closed for comments.
Please Email the Editor