Trading strategies for Copper and Natural Gas by Tradebulls Securities

Copper has made 'harami' candlestick pattern on daily scale which is a sign of reversal

Gold and silver witnessed turbulent trade this week as on August 12, where gold tumbled 3.4 per cent (worst daily drop since 2013) below $1,900 and then recovered and gained as much as 2 per cent, thus giving a single day move of almost 6 per cent, which is very much unheard of. Gold recovered Rs 2,245 from day’s low while Silver recovered Rs 6,030 from day’s low. It seems prices take stairs on the way up while take escalator on the way down. This can be explained that it took nine trading session for gold to climb from $1,900 to $2,000 while it took just one day to crash from $2,000 to $1,890. Silver, which took four trading session to gain from $25 to $30, took only one trading session to crash from $29 to $23.50. The correction is mainly because of profit-booking due to rise in US Yields, recovery of US Dollar and Russia’s vaccine which all contributed in sell-off of precious metals. There aren’t any fundamental shifts in the economy and long-term picture is still bullish. However, a very significant correction like in mid-March is very unlikely, this is not the end of the road for gold and silver prices, the rally will resume after prices consolidate lower. On a technical basis, even yesterday’s exaggerated move did not cause any extended chart damage and the additional froth that had been built up had been taken out, which is a good sign.

We may not see any runaway rally in crude oil prices as the EIA (Energy Information Administration) reported that although the US passenger airline traffic doubled in June from May’s levels, it was still 80 per cent below last year’s corresponding period. Fuel demand in Asia has picked up, but is still away from pre-Covid levels. Then there’s the big question of whether Opec relaxed its production cuts too soon. Refining margins are moving lower which is also bearish for crude oil prices while US stimulus talks stalling is also not good for crude oil prices. Main trend still is up, according to daily swing chart, and only below 3,000-2,980 we may see any significant correction. The trend has been choppy since last five trading sessions with prices going nowhere. Price above 3,200 will be a bullish scenario while prices below 2,980 will be a bearish scenario. At present, crude is confined in the range of 3,000-3,250.

Fundamentally speaking, the things to get bullish about natural gas are fading a bit in the near-term. On technical chart, short-term momentum is fading a bit as it is unable to cross 171 and has started retracing. The big short squeeze last week is running out of steam and there aren’t any significant short positions. Cooling demand from the US is also starting to taper off into the end of August. A closing below 155 could trigger fresh sell-off till 148 so we would be cautious near the supply zone of 169-171 in Natural Gas.

Sell Copper | TGT: 500 | Stop loss: 518

There is a clear negative divergence (RSI_14) on the daily scale and price us also far from its 50-EMA, suggesting that it is overstretched. Copper has made ‘harami’ candlestick pattern on daily scale which is again a sign of reversal. We recommend going short at current levels for the expected target of 500 and recommend stoploss of 518 on a closing basis.

Buy Natural Gas | TGT: 185 | Stop loss: 148

The trend of Natural Gas is bullish, owing to higher top and higher bottom formation. Prices are trading above all important moving averages with RSI_14 taking support at mid level point (50). Any correction is only expected below its 20 EMA as in the past 10 trading sessions, Natural Gas has been taking support at its 20 EMA. We recommend going long at current rate with expected upside move till 185 and stoploss of 148 on a closing basis.

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