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

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

US Dollar index is parked around 97.30 and is trading in a bull trend. US Dollar was able to shrug off weaker than expected US Retail sales data but is showing downward pressure after President Donald Trump said the US would delay tariffs on EU's automobiles.

Indian Rupee, meanwhile, is trading near its 11-week low. Rupee has depreciated from 69.50 to 70.70 in six trading sessions so we expect some pullback. At present, it is near to its previous swing high of 70.60 made on 25th April. If it breaks 70.70, we can see the next level of 71.10. Maximum retracement we can see in a couple of trading sessions is till 70.20.

Gold prices are on fire after China retaliated and imposed tariffs on US products. Gold is seeing safe haven buying as the equity market is crashing. Down the road, potentially, if equities slow down, and if the global economy slows down enough, we might see the US Fed cut rates. That expectation is breathing life right now into the gold market.

Prices are trading near $1,300 and have hit a four-week high as the US stock market is seeing its worst losses of 2019 and continuing last week’s downside pressure. Further inversion of the yield curve and growing investor pessimism will undermine the US dollar, which, in turn, will push the gold prices higher. Any loss in upside momentum in gold will fade away below 32,000 in MCX. On the upside, we expect gold to resist near 32,500 so any long position should be booked around that levels.

Crude oil witnessed a roller coaster ride after price rose when two Saudi oil tankers were among vessels attacked off the coast of the United Arab Emirates but fell on higher-than-expected US crude oil inventory. Crude oil failed to crash after higher inventory, indicating bullish trend. US imports of Saudi Arabia crude collapsed last week to 311,000 b/d, lowest in weekly data going back to 2010.

The spread between Brent and Weest Texas Intermediate (WTI) has risen from $6.55 in April to $9.22. Historically, higher spread refers to higher prices as whenever geo political risk arises in Middle East, the spread increases. Barring this Monday price action, Crude is trading in a range of 4250-4400 in MCX. Currently, it is trading in the upper end of the range and if it breaks 4400, we expect it to test 4500-4550 in coming sessions.

 

Sell Natural Gas

TARGET: Rs 177

STOP LOSS: Rs 189

Natural Gas had made doji candlestick on the daily chart which was followed up by a large negative red candle indicating short term top has been made. RSI_14 has also failed to sustain above 50 level on the daily scale and is back below it, indicating upside momentum has diminished. We expect pull back in prices till Rs 177 and so one can create short position with stoploss of recent swing high which is Rs 188.70 and keep target of Rs 177.

Buy Copper

TARGET: Rs 440

STOP LOSS: Rs 420

Copper had made hammer candlestick pattern on the daily scale after crashing from Rs 450 to Rs 424. The recent fall placed copper near oversold region where RSI_14 fell from 48 to 36 and has flattened now. Emergence of ‘hammer’ candlestick pattern and bounced of RSI_14 from lows of 36 to 39 indicates copper is showing signs of short covering. If copper sustains above Rs 430, we may see fresh long positions getting added. Risk reward shows it is unadvisable to create short positions at this juncture and we may see copper retracing up till Rs 440. So we recommend long position at current price with target of Rs 440 and stoploss of Rs 420.

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