Commodity outlook by Tradebulls Securities: Sell copper, buy natural gas

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

The dollar index (DXY) this week has traded roughly in the range of 93.30-94.08. We expect Indian Rupee (INR) to trade in the range of 72.50-73.30 next week. Any correction in Indian Rupee will only come if it manages to sustain below 72.20. If USDINR breaches 73.06 in Future, we may see rapid depreciation in our currency till 73.30-73.50.  INR got a small boost with a decline in US Treasury yields reducing support for the greenback.  US 10 yr yield decline from 3.110 to 3.05 which has put brakes on DXY. However given the hawkish view of Fed, we expect DXY to trade above 94.50 and so we are not expecting a significant correction in our currency. Next week chances are high for RBI’s rate hike so INR may get support but as long as 72.20 is not breached, we remain convinced that USDINR will remain weak.

Gold has not seen a major correction after Fed rate hike and is still sticking near $1200. The odds for a gold short-covering rally in the coming weeks are as high now as they’ve been in months. Whether or not the rally actually commences, though, is entirely up to the bulls. In MCX, 30200 continues to be strong support and I would only exit my long if that level is broken. I am still eyeing for 31000 levels as long as 30200 is not breached. Any downside significant correction can come if Gold in Comex breaches $1175. Bulls will have control if Gold sustains above $1220. Till then it would be frustrating for traders as gold will oscillate between $1210-$1188. Gold/Silver ratio is also at the extreme range though it has come down from 85 to 83, but, as long as it is above 80, we expect Silver to outperform gold.

Yesterday crude stockpiles in the US rose by 1.9 million barrels, but inventory remained 2 per cent below the five year average for this time of year. Spread between Brent and WTI still is at 9 and so we are still bullish in crude oil. Spread has to shrink below 6 for any correction in crude. There is an acute shortage of Crude oil as reflected by the higher prices. A combination of supply disruption from Libya, a collapse in Venezuelan output and the imminent sanctions on Iran have combined to spook markets into believing there will be acute shortages. Next contract in WTI is in backwardation. There will be a shortage for spare capacity once Iran’s sanction is placed completely in November. The US have infrastructure constraint and Russia, Saudia Arabia has max 1.4 million barrel spare capacity.

Sell Copper

Target: Rs 438

Stop loss: Rs 460

Copper made ‘shooting star’ candlestick pattern at 463.25 and now has retraced to 452. In last 3 trading session, Copper has made lower high which is an indication of buyers strength getting exhausted and bears trying to capture the trend. Copper has broken the last 3 trading session low which further confirms bears getting hang of the commodity. RSI_14 has also retraced from oversold territory and is now currently at 62. We expect Copper to re-test the lows of 738 where 200 DMA is placed and recommend short with a stop loss of 460.

Buy Natural Gas

Target: Rs 226

Stop loss: Rs 207

Natural Gas has made ‘hanging man’ candlestick pattern on the daily scale near 223.4 and has since retraced back to 216.40. Overall trend remains bullish but risk-reward ratio settles better near creating long position near Rs.212. On the daily scale, 20 DMA comes near 212 with previous swing high also collaborating near 212 making it important support. We would recommend creating long position near 212 with a target of 226 and stop loss below 207 on a closing basis.

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