Commodity Analysis

The rally in crude futures may not sustain

Akhil Nallamuthu | Updated on December 08, 2019 Published on December 08, 2019

Though the MCX Crude contract closed above ₹4,200, the breakout was not decisive

The MCX COMDEX, the composite commodity index of the Multi Commodity Exchange (MCX), moved up last week as its largest component, crude oil, appreciated. Currently testing the resistance at 3,900, the index can advance if crude oil price continues to appreciate, and gold, the second- largest component, continues to consolidate. Hence, so long as the bullions — gold and silver — consolidate, the index will follow the path of crude oil as these three contribute to 50 per cent of the index weight.

MCX-Crude (₹4,206)

The December futures contract of crude oil rose sharply last week, rebounding from the lower limit of the range between ₹3,980 and ₹4,200. At ₹3,980 lies the 50-day moving average, making it a good support.

However, the rally lost momentum as it approached the upper limit of the range and it struggled to break out of it. Though it closed marginally above ₹4,200, the breakout is not decisive. Notably, though the moving average convergence divergence is showing an uptick, the daily relative strength index (RSI) is not backing the recent rally as it failed to form higher peaks.

If the contract manages to hold above ₹4,200 in the coming days, it can be expected to move to ₹4,314, above which the resistance is at ₹4,420.

But if the price comes down, it might retest the range bottom at ₹3,980. Below that level, the immediate support is at ₹3,870.

MCX-Gold (₹37,699)

The February futures contract of gold has been consolidating between ₹37,500 and ₹38,325 for the past two weeks. This also means that the broader range between ₹37,500 and ₹38,950 still holds, and unless the contract moves out of this range, it cannot be expected to trend in any direction. Following the price, the daily RSI and the moving average convergence divergence indicator are staying flat, unable to hint at any direction.

If the contract breaches the upper boundary of the range at ₹38,950, it can result in a rally taking the price to ₹40,000.

Resistance above that level is at ₹40,800. On the other hand, if the contract breaks below the lower boundary of the range at ₹37,500, the medium-term trend of gold could become bearish.

The immediate support is at ₹36,380, below which the contract has a support band between ₹35,110 and ₹35,335.

MCX-Silver (₹43,545)

After trading sideways between ₹44,240 and ₹45,650 for past one month, the March futures contract of silver closed below the lower end of the range on Friday. It has also slipped below the psychological level of ₹44,000, opening the door for further weakness.

This has turned the medium-term outlook negative. The daily RSI is showing a fresh downtick, indicating considerable bearish momentum. But not much change can be observed in the moving average convergence divergence indicator.

Following the break down, the contract will most probably depreciate to ₹41,430 in the coming days. Support below that level is at ₹39,500.

However, if the contract manages to gain, invalidating the downward break, it will face a hindrance at ₹44,240. Above that level, ₹45,650 will act as a resistance.

MCX-Copper (₹438.1)

The December futures contract of copper declined during the first half of the week. However, it reversed sharply and closed the week at ₹438.1, after making an intra-week low of ₹427.7. The daily RSI is showing a positive sign following the recent uptick in price.

The moving average convergence divergence indicator is also showing signs of recovery as it has just entered the positive territory.

But the contract at its current level is testing the 21-day moving average, which can act as a resistance. Also, immediately above the current level, there is strong resistance at ₹440. For the recovery to be sustainable, the contract has to decisively break out of ₹440. Above that level, it can advance to ₹450. Alternatively, if the bearish trend regains momentum, it can test the support at ₹423 and ₹425.

NCDEX-Soyabean (₹4,120)

The breakout of the range seems to be sustaining in the December futures contract of soyabean as it has been trading above the range for the past one week. This increases the chances for further appreciation.

However, the daily RSI is not corroborating the bullish momentum as it has failed to form a higher peak. Hence, the price level of ₹4,085 is very crucial for the contract, and a prolonged sideways movement can weigh on it. Because, a break below that level could negate the breakout resulting in a decline.

If the contract manages to stay above the range and build on positive momentum, it can potentially rally to ₹4,240 in coming days. On the other hand, if the price weakens below ₹4,085, it can lead to more profit-booking, dragging the price to ₹4,000. Below that level, the support is at ₹3,927.

Published on December 08, 2019
This article is closed for comments.
Please Email the Editor