Commodity outlook by Tradebulls Securities: Buy lead, Sell Natural gas

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

Dollar index is trading near 97.30 and is looking strong; thanks to escalate in trade war tension. The US President has threatened to hike tariffs from 10 per cent to 25 per cent on Chinese goods from Friday if US-China trade deal does not happen.

This has put the market in risk-mode and all the risky assets, be it commodity and equity, saw sell off. Safe haven buying was seen as the greenback got stronger and gold saw some buying. Indian rupee has also depreciated on back of weak Indian equity market and foreign institutional investors (FIIs) outflow. We expect Indian rupee to test levels of Rs 70.50 soon if Trump implements higher tariffs on $200 billion worth of goods from China.

Gold has pulled back from its resistance of $1288 and has settled back to $1281. We may see either breakout or breakdown post Friday as gold price movement is based on US-China trade talk news. Clarity will emerge after Friday and we will see if gold emerges as safe haven or risk off commodity.

Currently, the trend is still strong for gold as we are seeing fall in 10-year US Treasury note yield which makes gold attractive. Falling equity market is also helping investors turn to gold. Gold needs to break from $1292 for momentum on the upside to continue. $1266 is strong support for gold and bears may only get active below that. Currently, it is trading above 200 day moving average, so bias is bullish but we don’t see any major upside till $1292 is not breached.

Crude prices are stabilizing after making a 5-week low and could see further upside if trade talks do not completely fall apart this week. The prices have inched up after the Energy Information Administration (EIA) yesterday reported a draw in US crude oil inventories of 4 million barrels for the week to May 3. We don’t expect any major downside in crude oil prices as there are many tailwinds like geopolitical crisis of Iran-US, Russia’s oil contamination issues, Venezuelan and Iranian sanctions, along with fighting in Libya. Crude needs to break the range of 4360-4220 for any further directional move. Any breakout above 4360 will propel crude till 4450 and breach below 4220 will see crude tumbling till 4050.

Commodity recommendation

Buy Lead above Rs 132 | TGT Rs 136 | Stoploss Rs 129

Lead has been trading in a range of Rs 132 to Rs 129.50 for past 6 trading session. Generally, we have seen that such narrow ranges are a precursor for large upmove on either side. Market is waiting for outcome of US-China trade talk and we may get the news later today. Clearly, price action is suggesting lead participants are waiting in the side lines. Thus, we recommend a long position only above the current range with target of Rs 136 and stoploss of Rs129 closing basis.

Sell Natural Gas | TGT 177 | Stoploss 185

Natural Gas has recovered from Rs 175 to Rs 182 in 3 trading sessions. After making double bottom at Rs 175, the rise of natural gas prices is swift and usually, correction often happens after such a swift move. Oscillators are yet to give buy signal and overall trend is negative. Current rally is an ideal opportunity for sell on rise strategy so we recommend short position with target of Rs 177 and stoploss of Rs 185.

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