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

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

Commodity outlook by Bhavik Patel - Sr. Technical Analyst (Commodities) at Tradebulls Securities:

Starting of the week, Dollar Index (DXY) was hovering around 3 weeks high. It was at familiar levels where it feels top heavy near 95.50. As we have seen since last 3 months, DXY fails to sustain near 95.30-95.50 and retraces back and this time too DXY retrace back to 94.90 from highs of 95.30 but now has again started strengthening. Indian Rupee Future has a lot of resistance around 69.15-69.20 so I don’t think we may pass this level easily but overall trend still looks bearish looking at strength in Dollar. 68.50 is where I am comfortable taking long position looking at risk reward ratio.

Gold has taken back seat as a dollar is running the show. Strong dollar is proving difficult for gold to stage any comeback. Gold last week had taken support around $1205-$1206 and has then staged some sort of recovery till $1214 on back of weakening the dollar. Gold on Friday bounced from $1205 on slowing US job data but strong dollar again has fizzled out the rally. Dollar gold prices have now fallen in 12 of the last 16 weeks, matching the metal's worst runs since the start of 1994. Further downside for gold still appears to be possible especially if the Dollar continues to rally. Short position in gold is becoming crowded as the net short position is at -41000 contracts which are unheard of. Despite the bearishness in gold, silver speculators are much less bearish on silver. For Silver, historically we have seen prices bouncing back from weekly RSI_14. Every time it reached the 30 area, it rebounded. That magical 30 level on Silver was reached last week, again. Silver saw an addition of long position while short positions have been retained. This is certainly unusual where silver speculators are bullish while gold speculators are bearish.

Crude Oil yesterday tanked by more than 3% as the US reported less than expected draw in crude oil inventories. Total U.S. stockpiles of oil and fuel rose to a seven-month high. China is cutting back on oil imports which are keeping crude oil prices weak. Market is ignoring the sanctions on Iran but we expect crude oil prices to pick up when sanctions on crude oil on Iran will come nearer. Currently, the sanctions are on banking transaction but on Nov 5, US will sanction export of crude oil from Iran and that is when we may see supply deficit. Right now demand and supply is in balance. Brent crude again has come to its support zone near 72. Looking at the correction, we expect crude oil to again test the levels of $71-$70. However, any serious correction can only come below $70. We urge investors not to catch a falling knife and let crude settle above $73.50 before any long position can be initiated.

Sell Natural Gas

Target: Rs 195

Stop loss: Rs 207

Natural Gas gained 7.5% in 5 trading session. The price action has over extended if we look at short term and medium term moving averages. The Oscillator RSI_14 has also come near 66 where previously it has faced stiff resistance. Since May, Natural Gas has taken multiple resistances near 204 and if we look at retracement, 78.6% retracement also comes at 204. Negative divergence is also being witnessed in RSI_14 on the daily scale and so we expect natural gas to retrace from high of 203 till 191. We recommend creating a short position with expected downside move till 195 and stop loss of 207 closing basis.

Buy Lead above Rs 148

Target: Rs 155

Stop loss: Rs 145

Lead continues to trade in a range of 144-148. RSI_14 has come out of the oversold region and is now at 38. However, Lead has fair resistance around 148 and needs range breakout for extend its upmove. 20 days moving average also comes around 148 indicating the presence of strong resistance. Instead of initiating trade when lead is in range, we would wait for breakout before commencing trade. So we recommend buying lead above 148 with expected target of 155 and stop loss of 145.

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