31/01/2011 (Daily News & Analysis) - The markets witnessed a lower turnover week (higher if the pro-rata adjustment for a holiday is made) as the traders displayed a return bias towards safe haven buying in bullion.

The week-on-week market-wide turnover on the MCX fell by 7%. The market-wide open interest fell by 4%. The open interest compressed due to the impeding expiry of the Jan series. The MCX turnover gainers during the week were cardamom, crude palm oil and gold.

The open interest gainers were copper, crude oil, crude palm oil, mentha oil, natural gas and nickel. The US non-strategic petroleum reserves were higher by 4.8 million barrels, at the 340.6 million barrel mark. The prices rose nevertheless as geopolitical stress fractures erupted in the Middle East and supply side fears emerged. Traders should focus on hard assets, especially supply constrained depleted industrials and silver among bullion. Energy may remain volatile with an upwards bias in the near term. Stop losses must be tightened in view of the rising beta factor.

Agri commodities
Chana is undergoing consolidation even as the trader interest on the counter is waning and open interest is drying up. The bulls need to defend the Rs2,520 levels in case of declines and the upthrust will begin only above the Rs2,650 levels. Market internals indicate a 96% decrease in turnover and a 50% decrease in open interest.

Mentha oil continued to gyrate within a symmetrical triangle and the compression in the trading range is a pre cursor to a bigger move in the offing. Watch the Rs1,100 levels as a make or break support, staying below which the commodity may keel over and decline. On the other hand, a breakout past the Rs1,225 levels will force a short squeeze. Market internals indicate a 27% decrease in turnover and a 16% increase in open interest.

Potato has shown a narrow truncated range as the agri prices are being talked down and fresh arrivals from the mandis cool off the buying frenzy. Watch the Rs666 levels as a critical support below which the bulls are likely to witness deeper cuts on the commodity. Market internals indicate a 45% decrease in turnover and a 1% decrease in open interest.

Refined soya oil has witnessed a bar reversal on the weekly charts as the price reversed from a significant high point in the ongoing rally. Unless the bulls manage to keep prices above the `674 levels consistently, profit taking may gain some ground in the near term. Market internals indicate a 46% decrease in turnover and a 19% decrease in open interest.

Metals
Aluminium has bounced off a near term support at the Rs108 levels and is likely to face a hurdle at the Rs116 levels in case of upmove. Till this hurdle is overcome, expect the upsides to be measured. Hold existing longs for now. The Rs106 level is a critical support for the coming week that the bulls must defend. Hold longs for now. Market internals indicate a 30% decrease in turnover and a 28% decrease in open interest.

Copper has staged a later recovery and is showing signs of buying support on dips, however, the Rs450 level will need to be overcome for a sustained and powerful upmove in the short/medium term. Hold existing longs for now as the outlook remains mildly optimistic. Market internals indicate a 19% decrease in turnover and a 2% increase in open interest.

Gold has rallied in the latter half on the week, spurred by the geopolitical stress in the Middle East as safe haven buying returned with force. The weekly chart indicates a long legged doji as ample cushions exist on the declines in the absolute near term. Should the yellow metal stay above the Rs20,375 levels consistently, expect a fresh upthrust. Market internals indicate an 11% increase in turnover and a 25% decrease in open interest.

Nickel has out performed its peers due to the supply side constraints, improving economic data and currency pegs. The longer term charts indicate some more upsides as the metal is likely to rally higher after a brief corrective hiatus. Nurse existing long positions for now. Market internals indicate an 18% decrease in turnover and a 19% increase in open interest.

Silver returned to its winning ways as safe haven buying returned. The weekly chart shows a doji formation and indicates support at lower levels. It will be critical that follow up buying emerge and the price stays above the Rs43,375 levels with higher volumes and open interest expansion if the upthrust is to gain momentum. Fresh buying is recommended once a confirmed forceful breakout is seen on the weekly charts. Market internals indicate a 7% decrease in turnover and a 12% decrease in open interest.

Zinc has witnessed a doji on the weekly charts in line with its base metals peers and witnessed ample support on declines. As long as the bulls maintain a price line above the Rs107 levels in the coming week, the outlook may remain optimistic. A decline below the Rs103 levels will be a harbinger of weakness. Market internals indicate a 4% decrease in turnover and a 17% decrease in open interest.

Energy
Crude oil has bounced off the weekly lows as the Egyptian crisis has spilt over to the Middle East and supply side constraint fears resurfaced. The prices have risen despite higher US non-strategic reserves and that underscores buying support on dips. Existing longs may be held for now. Market internals indicate a 7% decrease in turnover and a 28 % increase in open interest.

Natural gas was true to its form and validated my theory that price relation with crude oil is inverse. Since crude rose on Middle East worries, gas prices slumped in late trade in the week. Watch the `192 levels as a short term support below which the bears may emerge with daggers drawn. Market internals indicate an 8% decrease in turnover and a 20% increase in open interest.