Commodity Analysis

Weekly trading guide - Commodities

Akhil Nallamuthu | Updated on September 29, 2019 Published on September 28, 2019

Since the beginning of September, the commodity market has been under pressure, with the highly traded base metals and the bullion beginning to decline. This is reflected in iCOMDEX, the commodity index of Multi Commodity Exchange, losing around 50 per cent of its previous rally to trade around 600. Price action looks weak with technical indicators such as the relative strength index and moving average convergence divergence indicators signalling further weakness.

MCX-Crude (₹3,940)

Crude oil seems to have erased all the gains it posted on the back of the drone attack on an oil facility in Saudi Arabia. The October expiry futures contract continued its downtrend, and has broken below the psychological support at ₹4,050. It is currently testing a key support area at ₹3,850 levels, which is also substantiated by a trendline support in daily chart.

Near-term outlook remains sluggish and the price can oscillate between ₹3,850 and ₹4,050. The price level of ₹3,850 is critical, and if the contract breaks below that, it will most likely witness considerable sell-off and could decline towards ₹3,600 levels over the medium term. Alternatively, if the price breaks above ₹4,050, it will regain bullish momentum and could reclaim ₹4,300 levels.

MCX-Gold (₹37,750)

Gold continues to move sideways, fluctuating between ₹37,438 and ₹38,215. As long as the October futures contract of gold stays above ₹37,438, the major bullish trend will remain valid. Noticeably, the contract price is hovering around the support offered by the 50-day moving average, which is corroborating the bullish view.

But the relative strength index is below the midpoint level of 50, indicating weakness. If the downtrend persists and the price breaks below ₹37,438, the medium-term trend will turn bearish and the price could tumble to ₹36,000 levels. However, if the contract attracts buying interest and moves past ₹38,215, the price will most likely rise towards ₹39,340, beyond which it could retest the psychological level of ₹40,000.

MCX-Silver (₹45,474)

After consolidating for the past two weeks between ₹45,900 and ₹47,440, the December silver futures contract declined and closed the week at ₹45,474, after marking a one-month low of ₹44,655. The price action is visibly weak as the metal has formed a lower high in the daily chart, and the price breaking below ₹45,900 marked a lower bottom, which opens the door for further depreciation in the coming days.

The relative strength index has dipped below 50, reaffirming the bearish bias; a fall from current levels may drag the contract price to ₹42,450, below which psychological level of ₹42,000 will act a good support. On the other hand, the contract will face stiff resistance between ₹47,440 and ₹48,000 on the upside.

MCX-Copper (₹442.2)

The October futures contract of copper registered a negative close for the second consecutive week. The contract price is hovering around the support band between ₹441.2 and ₹439. Taking a broader view, one can observe that the contract is oscillating within a range between ₹439 and ₹460.8. As a result, trend indicators such as moving averages and moving average convergence divergence will be of less significance.

Hence, price swings within the range will change directions frequently, and unless either of the boundaries of this range is breached, the metal’s long-term trend will be sluggish. If the contract manages to breakout of the range beyond ₹460 levels, it will rise towards ₹480 levels. Alternatively, a break below ₹439 will result in the price tumbling to ₹420.

NCDEX-Castor seed (₹5,136)

The price of October futures contract crashed last week from ₹5,880 to ₹5,136, losing 11.5 per cent — one of its biggest weekly loss in recent times. Broadly speaking, the contract has been trading within a range between ₹5,000 and ₹6,000. Currently trading at ₹5,136, the price is approaching ₹5,065, the 50 per cent Fibonacci retracement level of the previous major uptrend.

Hence, the price range between ₹5,000 and ₹5,065 can act a good demand zone for the commodity. However, the sharp decline has brought down the price below the 21-day and 50-day moving averages. So, if the price continues to weaken and breaks below ₹5,000, the sell-off could intensify and drag it to ₹4,775. On the other hand, if the contract bounces, taking support from current levels, it will face a hurdle at ₹5,356.

Published on September 28, 2019
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