Commodity outlook by Tradebulls Securities: Buy crude oil, natural gas

Commodities outlook & stock recommendations by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls Securities

Indian rupee is confined in range of 71.60-70.80. Twice it tested support of 70.60-70.65 and bounced back till 71. Dollar index was under pressure after rally in GBP and EUR when Brexit deal was finalized between EU and UK. Although the deadline may get extended but relief rally was seen in EUR and GBP which pushed DXY to 9 week low. Indian rupee meanwhile continues to trade in narrow range with no clear direction.

Productive US-China trade talks, strong corporate earnings, and a UK-EU Brexit deal have brought back investor risk appetite. So far, more than 76% of the companies in the S&P 500 have topped analyst expectations. Gold is failing to hold its head above $1500. Selling pressure is evident whenever gold comes near $1500 and it needs to breach above $1520 for sellers to dissipate. We don’t believe gold will sustain below $1450. Gold is expected to trade in range of $1475-$1500 in coming weeks. Silver is expected to outperform gold as any progress in US-China trade talks will be positive for silver as it is also industrial metal.

December’s OPEC and OPEC+ meetings will likely yield the promise of further output cuts and Saudi Arabia will pump even less next year in a vain attempt to prop up prices. U.S. shale production growth is slowing down, and America’s shale output will likely peak in the next few years. The U.S. oil rig count continued to drop in the latest reporting week, according to Baker Hughes data. The total oil and gas rig count now stands at 851, or 216 down from this time last year. The headwinds for Crude oil is weak demand. Winter is also when crude oil demand is less than summer so we don’t expect any runaway rally in crude oil prices. In MCX, it needs to break 4100. Downside is restricted to 3750 and upside is capped till 4100.

Stock recommendation:

Buy Crude Oil: TGT 4050 Stoploss 3800

Crude oil made double bottom at 3600 on daily scale and is currently trading above 20 and 50 day moving average. RSI_14 is above 50 indicating strength on the upside. Since 24th Sept, it is first time that prices of crude oil has closed above both  20 and 50 DMA. Crude oil also has managed to break out from its narrow range which it was trading since past 6 trading session giving further testament of momentum on the upside. So we recommend buy with expected upmove till 4050 and stoploss of 3800.

Buy Natural Gas: TGT 170 Stoploss 150

Natural Gas has made double bottom around 155 on 11th Oct and 22nd Oct indicating strong supportive level. Natural Gas also made ‘harami’ candlestick pattern after double bottom indicating selling pressure getting abated. Injection season is now coming to end and historically Natural gas prices show positive momentum before winter season. Risk reward ratio for long is favourable since Natural Gas is languishing at bottom end so buy near 160 for target of 170 and stoploss of 150.

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Disclaimer: Author may or may not have positions in the above mentioned stocks