Expiry of January series will weigh on market sentiments

The markets witnessed a higher turnover as trader participation was higher on increased volatility. The MCX recorded an 8% increase in market wide-turnover on a week-on-week basis. The market-wide open interest rallied by 14%. Turnover gainers were chana, copper, crude oil, gold, lead, nickel, potato, refined soya oil, silver, steel (GZB) and zinc.

The open interest gainers were almonds, aluminium, copper, crude oil, gold, lead, potato, ref soya oil and silver. The bears have largely increased their exposure and the profit-taking at higher levels was omnipresent. The energy counters wilted under perceived lower demand even as the US non-strategic inventories fell by 0.4 million barrels to 330.6 million barrels. This week is likely to see extended weakness on the industrial counters as bulls exit on advances. The impeding expiry of the January series and margin calls will weigh on the sentiments.

Agri-commodities Chana has extended its weakness as the lower tops and bottoms formation continues unabated. That the decline has been on higher volumes is a worrying indicator. Bulls are advised to stay off and bears may hold their existing shorts for now.

Market internals indicate a 19% increase in turnover and a 29% decline in open interest as the bears booked gains partially.

Mentha oil has established and activated a double top resistance at the Rs 635 levels and unless this hurdle is overcome on high volumes, fresh buying is ruled out. The Rs 575 level may be watched at a support in the near term, below which, the bears are likely to step up their activity. Market internals indicate an 11% decline in turnover and a 12% decline in open interest.

Refined soya oil has seen a continued slide as the lower tops and bottoms formation has closed the open gap left November 2009. The Rs 445 level will be a short-term support area to watch out for as the immediate short-term significant low on the swing charts. Market internals indicate a 17% increase in turnover and a 9% increase in open interest.

Metals Aluminium has seen a lowest weekly close in 2009, as the bulls surrendered longs and the bears added shorts. The impeding expiry of the January contracts added to the unwinding bias and the weakness in the peer group completed the weak picture. Bulls are advised to lay off fresh purchases and sit on the fence. Market internals indicate a 7% decline in turnover and a 13% increase in open interest.

Copper is showing signs of higher relative strength vis-a-vis its peers as the bullish trendline has been tested. The trendline offers support at the 332 levels and must not be violated forcefully on a closing basis or the bulls may lose their initiative. Market internals indicate a 16% increase in turnover and a 13% increase in open interest.

Gold has seen unwinding of longs as the decline and consistent trade below the Rs 17,000 levels has seen exacerbated selling. The Rs 16,200 level is the next level to watch and should this level hold, watch the price / volumes / open interest correlation before initiating fresh buys. Upsides will encounter overhead supply as long as the price is below the Rs 17,000 mark. Market internals indicate a 4% increase in turnover and a 6% increase in open interest.

Nickel has declined in tandem with its base metal peers and made a gravestone doji (hakaishi doji formation) on the weekly charts, which has bearish implications. As was the outlook last week, unless the Rs 900 threshold is overcome on high volumes and open interest expansion, the bulls are unlikely to regain control of the sentiments. Market internals indicate a 12% increase in turnover and a 25% decrease in open interest as bulls unwound ahead of the January expiry.

Silver is declining towards the bullish trendline support at Rs 25,750. Since this trendline was made since December 2008 and is 13 months old, it has significant validity as a support. As long as this support holds, expect the possibility of a bounce-back as a fair probability. Market internals indicate a 30% increase in turnover and a 41% increase in open interest.

Zinc too has retraced its recent gains and is headed towards its trendline support at the Rs 97 levels, which is a strong area to watch out for. Though not necessarily possible this week, it would be a valid buy point in case the level is attained. Fresh buys must be avoided until a breakout above the Rs 120 levels is witnessed on higher volumes and open interest expansion. Market internals indicate a 6% increase in turnover and a 3% decline in open interest.

Energy crude oil has established and activated a double top formation at the Rs 3,825 levels and the decline was on marginally higher volumes across all series. The bears have added on to their shorts as can be seen from the higher open interest. Higher volumes imply that day traders too seem to be inclined towards selling. Market internals indicate a 2% increase in turnover and a 19% increase in open interest.

Natural gas has seen a revival in trader interest on the long side as the counter has shown higher relative strength as compared to crude oil. A sustained trade above the Rs 270 levels will be needed to indicate a breakout, which will be a fresh buy trigger, provided volumes and open interest rally in tandem with the prices. Market internals indicate a 29% decline in turnover and a 10% decline in open interest.