Commodity outlook by Tradebulls Securities: Buy lead, sell crude oil

Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls.

The dollar index surged to 97.40 after FOMC meet where Fed chairman stated that US economy is well on track and there aren’t any chances of a rate cut. Strong private employment data from US also added strength to greenback and we saw all other commodities crashing against the strong dollar. Indian rupee opened strong as weak crude oil prices prove to be boon for our market. Indian currency is expected to test levels of 69.50-69.40 and may bottom out from those levels. In the long term, we are still bullish in crude oil and so that will create headwinds for our currency.

Solid economic data from US and mildly strong US equities are responsible for decline in precious metals on Thursday. Gold and silver, both are feeling the heat from surging stocks and dollar index. Gold has broken intraday its 200-day moving average (DMA) on COMEX and is near its 200-DMA on MCX which comes at Rs 31,400. Previous swing low also comes around Rs 31,400 so that support should hold and if gold breaches Rs 31,400 on the downside, Rs 31,250 - Rs 31,100 is where next support emerges. Strong selling pressure is witnessed and we may see some technical bounce but investors should refrain from bottom fishing at these levels since gold is at critical support levels. Only if gold trades above $1,282, we can say bottom has been placed.

Crude oil prices drifted lower amid blanket selling in all commodities. Supply tightness still persists which will give tailwinds to crude oil prices. Higher than expected US crude oil inventory did give bears some edge but for bears to have complete control, $70 is needed to be breached in Brent. We expect this week to be decisive and for now, we should stay away from this market in the short term.

BUY: Lead

TARGET: Rs 136 

STOP LOSS: Rs 127

Lead is trading at three and a half-year low. It is one of the metals which have consistently underperformed. Medium-term outlook is bearish but in the short term, RSI_14 is showing lead in oversold territory. It has made positive divergence on the daily scale and we are expecting dead cat bounce from this region. Lead has also made ‘harami’ candlestick pattern after constant fall leading that we may see some halt in the breakdown. So buy lead with expected move till Rs 136 and stop loss of Rs 127 closing basis.

SELL: Crude oil below Rs 4,380

TARGET: Rs 4,280 

STOP LOSS: Rs 4,450

Crude oil is at a critical support level. As we have written that we expect this week to be decisive for crude oil and we see crude oil price correcting below Rs 4,380. Since April 11, crude oil has bounced back from this level thrice and so we give high importance to this level. Only below Rs 4,380, can we see crude oil giving up its gain and testing lower levels till Rs 4,280. So, we would recommend short only below Rs 4,380 for expected downfall till Rs 4,280 and recommend stop loss of Rs 4,450 on closing basis.

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Disclaimer: The analyst may have positions in any or all the commodities mentioned above.