Commodity Analysis

Crude oil turns bearish

Akhil Nallamuthu | Updated on September 06, 2020 Published on September 06, 2020

September futures breached ₹3,000, turning the outlook negative

A sharp fall in the price of crude oil pulled down the iCOMDEX, the composite index of the Multi Commodity Exchange (MCX), as oil has the maximum weight of 36 per cent. Moreover, the commodity market as such faced selling pressure last week. Consequently, the index closed with a loss of 1.8 per cent last week.

Going ahead, as the trend of crude oil looks bearish, it can have a considerable downside impact on the index. The bullion which has 22 per cent weight in the index has been largely consolidating for the past two weeks.

MCX-Crude (₹2,903)

The September futures contract of crude oil, which has been oscillating between ₹3,130 and ₹3,250 for nearly two months, broke below the lower boundary of the range and witnessed a sharp decline. The contract also breached the important support of ₹3,000, opening the door for further weakness. Substantiating the downward bias, the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicators in the daily chart have entered their respective bearish territory.

Considering the above factors, traders can short the contract on rallies with stop-loss at ₹3,100. From the current levels, the price can be expected to decline to ₹2,860 and ₹2,725 – the 50 per cent Fibonacci retracement level of the previous rally. A break below this level can intensify the sell-off where the contract could drop to ₹2,600.


MCX-Gold (₹50,678)

The October futures of gold on MCX ended lower last week at ₹50,678 versus the preceding week’s close of ₹51,448. However, the price action of the past weeks shows that the contract has been moving along a sideways trend between ₹50,600 and ₹52,100. At ₹52,100, the 21-day moving average (DMA) coincides, making it a strong hurdle and immediately below ₹50,600 is the important psychological level of ₹50,000.

Unless either ₹50,000 or ₹52,100 is breached, the next swing in price will remain uncertain.

Despite the contract trading sideways, the RSI and the MACD indicators in the daily chart have slipped into the negative territory. Given that, if the contract breaches ₹50,000, the sell-off can be sharp. But since ₹50,000 is a critical level, a bear trend cannot be confirmed as of now. So, traders can adopt range trading strategy until ₹50,000 or ₹52,100 is taken out. Resistance levels above ₹52,100 are at ₹53,000 and ₹54,000 whereas support levels below ₹50,000 are at ₹48,900 and ₹48,000.

MCX-Silver (₹67,266)

Similar to gold futures, the December futures of silver on MCX has been moving in a horizontal trend, i.e., it has been traversing between ₹66,000 and ₹71,500 for the past two weeks. Even as the contract is trading in a range, the RSI and the MACD is showing a bearish bias as both the indicators entered their respective bearish zone.

Nevertheless, a trend cannot be confirmed until the contract moves out to the price band ₹66,000 – ₹71,500. So, until then traders can execute range trading strategy. A breakout of ₹71,500 can bring in more long positions lifting the contract to ₹72,700 and ₹74,000. But if the contract breaks below ₹66,000, it will most likely depreciate to ₹63,400 – its 50-DMA. Below that level, it can fall to ₹62,000.

MCX-Copper (₹526.6)

The September futures contract of copper, after opening with a minor gap-up, began to descend through the week. However, the contract bounced off the 21-DMA support at ₹515 on Friday, eventually wrapping up the week with a small gain. This means, the uptrend is intact and so long as the contract trades above ₹500, traders can be bullish biased. Interestingly, copper was the only base metal that closed with a gain last week.

Since the price action is inclined to upside, the daily RSI is showing a fresh uptick and it stays above the midpoint level of 50. The MACD indicator in the daily chart, though flat, remains in the bullish region. Considering these factors, traders can initiate fresh long positions in dips with stop-loss at ₹510. On the upside, the contract is likely to advance to ₹540 and if the bullish momentum sustains, it can even rally to ₹550.

NCDEX-RM seed (₹5,398)

The September futures of RM seed (mustard seed) in the National Commodities and Derivatives Exchange (NCDEX), which has been in an uptrend since early July, broke out of the resistance at ₹5,265 last week and registered an intraweek high of ₹5,466 before ending the week slightly lower at ₹5,398. The contract has been consistently forming higher highs and higher lows – a considerable bullish indication.

The upward bias is corroborated by the RSI and the MACD indicators in the daily chart, as they stay in their respective bullish zones. Also, the short-term trend will be bullish as long as the price stays above ₹5,265. Hence, traders can buy the contract in declines with stop-loss at ₹5,265. The contract is likely to head northwards to ₹5,500 in the forthcoming sessions.

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Published on September 06, 2020
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