Trading strategies for crude oil and zinc by Tradebulls Securities

Another surprise build up in US inventory also helped the crude oil prices pushing down below 4,600 but overall trend still is bullish as there is no reversal pattern on daily chart

Gold is slowly recovering, although market sentiments have shifted following recent gains in U.S fixed income bonds and notes, coupled with a stronger US dollar, rising US equities markets and strong gains in Bitcoin. Investors are shifting focus from Gold to other instrument mentioned above and that is why we are seeing strong outflows in Gold ETF. Dramatic shift in US Dollar along with drop in yields have pushed gold prices above $1,700. Recovery to gold may not happen overnight and any of the shift in trend from the above mentioned instrument can hamper gold’s recovery. Money managers have liquidated their long and added fresh short, a developments that saw the long-short ratio drop below 2 for the first time since May 2019.

In silver, selling has been more subdued given the tailwind from industrial metals and with that some relative strength against gold. The net-long in both was reduced by around 20 per cent to the a seven and a one-month low respectively. Near term outlook is turning bullish after in four hour chart, RSI_14 is trading above 50 suggesting that the bullish momentum is gathering strength and there is more room on the upside.  To the upside, if we were to break above the 50 day EMA then silver could probably go looking towards the $28 level. We have no interest in shorting the silver as of now.

The current weakness in crude has only triggered a small amount of risk reduction from hedge funds with the combined net-long in WTI (-3.7k) and Brent (-3.8k) being reduced to 728k lots. With the net-long staying close to the highest level since October 2018, the 7.6k reduction was however the biggest on a weekly basis since early November. This week, we saw crude oil touching $70 on the back of Iran-backed Houtini rebels striking Saudia Arabia’s refineries. Since then, prices have settled as crude was continuously trading in overbought zone. Another surprise build up in US inventory also helped the prices pushing down below 4,600 but overall trend still is bullish as there is no reversal pattern on daily chart.

Now that weather has returned to normal, Natural Gas prices have retraced. Thanks to record amount of withdrawal of Natural Gas in February, EIA forecasts that natural gas inventories will end March 2021 at 1.6 Tcf, which is 13 per cent lower than the five-year average. We might see more upward movement soon as there is expectation of colder than normal weather that is expected to cover most of the United States for the next 2-weeks.

Recommendations

Sell Zinc | TGT: 208 | Stop loss: 219

Zinc has crossed over in bearish sentiment as RSI_14 is below 50. The price is trading below 20 and 50 DMA and is on the verge of cross below on daily scale. We expect the downside momentum to continue till 208, and so, recommend short with expected target of 208 and stoploss of 219 on a closing basis.

Sell Crude oil | TGT: 4,500 | Stop loss: 4.745

Crude oil has made ‘Dark cloud cover’ candlestick pattern on the daily scale. There is negative divergence in RSI_14 and it holds importance as divergence came when prices are trading in overbought zone. We expect prices to retrace till 4,500, where the 20-DMA is. Prices have been trending far from 20-DMA, so pullback is bound to happen. So sell at current level with expected target of 4,500 and stoploss of 4,745. 

Disclaimer: Bhavik Patel is Sr. Technical Analyst (Currencies/Commodities) at Tradebulls Securities. Views are personal.