Trading strategies for crude oil and zinc by Tradebulls Securities

Failure of any constructive talks for the US stimulus package and President Donald Trump calling off negotiations with Democrats on new stimulus package has made investors go for risk off mode which shot US dollar up. All asset class, namely equity, precious and base metals witnessed a sell-off because of this. If there is any further hint of stimulus package, we may again see jump in all asset class. In the absence of major data or events in Asia, gold traders will focus on analysing the risk factors for immediate direction. In doing so, Trump’s health, fiscal stimulus, virus woes, and the Brexit are likely to be the keywords to observe. Historically, gold tends to do well ahead of US elections and after the Chinese “Golden Week” holiday. We believe any serious correction in Gold can only come below $1,850. But also, serious buying in Gold will only come above $1,925. Till then, it is expected to remain in a range.

Silver is taking stairs on the way up and taking elevator on the way down. It is near its support zone around $23 and we have next support zone around 59,000-58,500. The recent swing high of 62,500 is the zone that silver needs to break for any upside momentum. In the short-term, we are still more bearish in Silver than in Gold.

Oil prices is trading in the range of $42-$36. While any increasing cases of Covid-19 is putting pressure on prices, yet somehow it is managing to grab buyers' attention around $36. All fundamentals point to bearish signs like fail in stimulus talk, increasing cases and putting restrictions by other countries to stop spreading of virus and China’s slow import. The only positive factor for crude oil is supply disruptions due to a strike of oil workers in Norway and potential shut-ins in the US Gulf of Mexico due to another hurricane also supported oil prices. Retail trader data shows 48.82 per cent of traders are net-long with the ratio of traders short to long at 1.05 to 1 and if one wants to take contrarian view, then prices may continue to find support as more participants are net short. Other good sign for crude is improving refining margin. If refining margins are rising in cohort with a rising crude price, it signals one thing and one thing only - demand is improving.

One thing we know right now is that the incoming weather trend is not going to be favorable for the bulls.  We would be much more confident if cash traded to $2.6/MMBtu.Medium term oulook remains bullish though. Falling lower 48 production and rising LNG exports will remain on track, pushing the market into -5+ Bcf/d deficit this winter. But if weather continues to remain bearish, then we may see Nov Future also witnessing selling pressure. Two things is needed to see price rise in NG. First is weather outlook. Watch the weather outlook to look for signs of early heating demand and so far there is no heating demand expectation till mid October. Second would be cash price reaction to higher LNG exports . A rebound back above $2 would be viewed as very positive and a bottom is near for November futures.

Buy Crude | TGT: 3,050 | Stop loss: 2,830

Crude oil has made ‘Piercing line’ candlestick pattern on daily scale, which has bullish implementation. Follow-up candle was in green and RSI_14 has also come near 50 showing neutral setting. Price action has also come up above 20 and 50 DMA. So, we expect prices to test levels of 3,050 so buy at current levels for expected target of 3,050 and stoploss of 2,830.

Buy Zinc | TGT: 193 | Stop loss: 185

Zinc has made ‘Piercing Line’ Candlestick as well as ‘Bullish Belt Hold’ candlestick pattern. Both have bullish implication and prices have converged around its short term moving average of 20 and 50. RSI_14 is steady at 49 with no divergence on daily scale. We recommend long positions with target of 193 and stoploss of 185.

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