Commodity Analysis

Technical View | Crude oil price can slip further

Akhil Nallamuthu | Updated on September 14, 2020 Published on September 13, 2020

Price decline with higher volumes denotes a strong downtrend

Except the precious metals, which posted marginal gains, all other commodities were under pressure last week, particularly the energy commodities.

The price of crude oil dropped by more than 5 per cent, dragging the iCOMDEX, the composite index of the Multi Commodity Exchange (MCX). While the composite index lost half a per cent, the bullion index, comprising gold and silver, gained about 1.2 per cent.

Crude oil and gold tend to play a major role in the movement of the composite index as both together contribute about half to the index. As gold remains flat and crude oil looks negative, the index could depreciate during the coming week.

MCX-Crude (₹2,743)

Extending the downtrend on higher volumes, the September futures price of crude oil on MCX breached the support at ₹2,860 and registered an intra-week low of ₹2,672 on Tuesday before recovering to ₹2,743.

However, the trend remains bearish and the contract is likely to depreciate further from here.

The bearish outlook is supported by the relative strength index (RSI) and the moving average convergence divergence (MACD) in the daily chart; both the indicators are in their negative territories. On the back of above reasons, traders can take a bearish view and initiate fresh short positions on rallies with a stop-loss at ₹2,950.

The contract might fall to ₹2,570 and ₹2,500 in the near-term. The subsequent support is at ₹2,400.

MCX-Gold (₹51,319)

Even as the October futures of gold on MCX gained last week, it continues to trade within the price band of ₹50,600 and ₹52,100. At ₹52,100, the 21-day moving average (DMA) coincides, making it a strong hurdle; immediately below ₹50,600 is the important psychological level of ₹50,000.

So, unless either ₹50,000 or ₹52,100 is breached, the next swing in price will remain uncertain. But the major trend will remain bullish as long as the price stays above ₹50,000.

As the contract is treading a sideways path, the RSI and MACD indicator in the daily chart are hovering around the neutral region.

Given the price behaviour, traders can execute a range-trading strategy until either of ₹50,000 or ₹52,100 is breached. The reesistance levels above ₹52,100 are at ₹53,000 and ₹54,000; the support levels below ₹50,000 are at ₹48,900 and ₹48,000.

MCX-Silver (₹67,928)

The December futures contract of silver on MCX was sluggish as it was trading within a narrow range. Notably, the contract has been fluctuating between ₹66,000 and ₹71,500 for the past one month. Even though the price is below the 21-day DMA, the overall bull trend will be intact as long as the price is above ₹62,000.

Following the sluggish price action, the RSI and the MACD indicator in the daily chart are flat.

Despite the major trend being bullish, the contract should break out of the resistance at ₹71,500 to establish a sustainable rally.

Considering the above factors, traders can adopt a range-trading strategy until the contract continues to trade within ₹66,000 and ₹71,500. While the breakout of ₹71,500 can lift the contract to ₹72,700 and ₹74,000, a break below the support of ₹66,000 can drag the contract to ₹63,400. The support below that level is at ₹62,000.

MCX-Copper (₹524.1)

The September futures contract of copper on MCX has been consolidating between ₹510 and ₹530 for the past three weeks.

In the weekly chart, the contract has formed a ‘spinning top’ candle stick pattern. Though the pattern generally hints at indecision in trend, it might be denoting a possible reversal, considering the positioning of the pattern, ie, it has formed post a strong rally.

However, the contract has a strong support at ₹500 and until that level is taken out, a bearish reversal cannot be confirmed.

Because of the horizontal price movement, the RSI and the MACD indicator are flat. But a prolonged consolidation can increase the possibility of a price correction. Considering that the overall trend is bullish and ₹530 is a hurdle, traders can go long on the contract with a stop-loss at ₹510 if it breaks out of ₹530.

Above this level, it is likely to advance to ₹540, and if the bullish momentum sustains, it can even rally to ₹550.

NCDEX-Chana (₹5,110)

The September futures of chana on the National Commodities and Derivatives Exchange (NCDEX), which has been in a rally since early August, witnessed a price correction last week.

It marked an intra-week low of ₹4,806 last Wednesday. However, the contract rebounded sharply on the back of the support of 23.6 per cent Fibonacci retracement level at ₹4,810 and rallied past the prior high at ₹5,038. Importantly, it has decisively breached the resistance of ₹5,000. Its momentum looks strong and the bullish outlook is supported by the RSI and the MACD indicator as both the indicators show a renewed positive momentum. Hence, traders can buy the contract on declines with a stop-loss at ₹4,950. On the upside, the price is likely to advance to ₹5,200. A breakout of that level can lift the contract to ₹5,250.

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Published on September 13, 2020
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