Trading strategies for nickel and copper by Tradebulls Securities

Gold prices have stuck in the range of 48,800-49,300 as investors are awaiting US economic data which is consumer price index. If US inflation figures turn out to be higher than expected once again, the debate about an earlier US Fed exit from its ultra-expansionary monetary policy could flare up again which would have negative impact on gold as bond yields would rise along with the US dollar. Rising raw commodity prices the past few months are an ominous sign that inflation could become problematic. Momentum from hedge funds speculative positions have started to ebb as profit booking is evidently taking place. According to COT report, Gold buying ran out of steam with long accumulation slowing to just 2.9k lots, a far cry from the 61.3k lots that was net bought the previous three weeks. The lack of fresh buying last week could indicate that this initial demand has now been met. In MCX, gold has good support around 48,700 and any dips around that level should be used to go long with expected target of 49,700 and stoploss of 48,200.

July silver futures bulls have the overall near-term technical advantage. However, a nine-week-old uptrend on the daily bar chart has stalled out. Silver bulls needs closing above 73,500 for momentum to turn from neutral to bullish. The next downside price objective for the bears is closing prices below solid support at 69,800 which is June low and that would open gates for bears to gain upper hand. First resistance is seen 72,800 and then 73,500. Next support is seen at this week’s low of 70,500. Silver longs were reduced for a second week and we are therefore witnessing underperformance compared to gold and are more bullish in gold than silver.

Crude oil prices are trading higher due to expected increase in demand as economies are opening up and US production is lagging pre-pandemic levels. The decline in US drilling and output leaves little competition to efforts by the OPEC+ to manage markets. For now, OPEC+ has no motivation to boost production more than planned. It has therefore made no indication that more barrels could be coming. OPEC+ has reiterated its intention to add some 2 million bpd to its combined production from July, but there is no talk of adding any more production. Hedge funds increased their combined crude oil net long by 25.2k lots to 649.5k, a three week high but still some 88k below the recent peak in February. OPEC’s bullish demand outlook for the second half combined with the OPEC+ groups ability to control the price, helped drive Brent above $70 (2-year high) while WTI reached levels last seen in 2018. We continue to remain bullish in crude oil prices but one should wait for some dip as prices are already trading at multi year high and sharp profit booking cannot be ruled out.

Natural gas prices have rallied as rising cooling demand expectations is expected, according to recent weather model. Not just the US, but European countries are also expected to see increase in demand for natural gas for cooling. That being said, we don’t expect natural gas to top above 236 as from Mid June, we might see some cold wave coming in the US. It is likely to remain choppy and we might see more selling if prices come below 220.

Recommendations

Buy Nickel | TGT: 1,354 | Stop loss: 1,287

Nickel has made ‘harami’ candlestick formation after sharp red candle, indicating selling momentum has subsided. Follow up candles were in green, indicating buyers are staging some sort of comeback. Prices are touching 50-DMA and have now started trading above 20-DMA, which is a positive sign. We expect momentum to continue till 1,354 where Nickel has fair bit of resistance as both in May and June, it was unable to breach that level. So buy at current price with expected target of 1,354 and stoploss of 1,287 on a closing basis.

Sell Copper below 730 | TGT: 710 | Stop loss: 740

Since May, copper has taken support around 733 and 730. Prices have bounced back from those levels indicating that buyers are defending that zone. Once that level is breached on the downside, then we may see sellers gaining upperhand. Trend is neutral to negative for Copper as RSI_14 is below 50. Prices are trading below 20 DMA and just shy above 50 DMA. We would recommend taking short position July contract below 730 for expected down move till 710 and stoploss of 740 on a closing basis.
Disclaimer: Bhavik Patel is Senior Commodity/Currency Research Analyst at TradeBulls Securities.Views are personal.