Trading strategies for lead and crude oil by Tradebulls Securities

Gold prices have dropped below $1,800 to nearly 2-week low on strength of US Dollar and rise in US Treasury Yields. The price of gold appears to reverse course after its failed attempt at the start of the February to test its recent high of $1,872. The US 10 year Treasury yield is back to pre-Covid rates and, to be fair, there are plenty of factors supporting higher treasury yields like inflation expectation, elevated energy prices, record high equity prices and progress towards US President Joe Biden’s stimulus deal. All these factors are pushing gold prices down and we expect prices to re-test levels of $1,760 it made during November 2020. In MCX, below its immediate support of Rs 46,600, Gold may test levels of Rs 45,700-Rs 45,600 where there would be opportunity to go long. In short-term, the trend still is weak and we might see some bouts of short covering here and there.

Silver prices have slumped after gold on account of rising US Treasuries yield. Stronger-than-expected US manufacturing date also propped US dollar up which is negative for precious metals. Precious metals markets are highly sensitive to movements in US real yields and inflation expectation has also risen by virtue of fact that nominal yields have increased. Drop in infection cases is propping bond market higher indicating participants are optimist about US economic recovery. Markets seem to be betting that the Fed is going to taper its QE programme sooner or later, hence the upside seen in real yields which might be negative for gold and silver.

Oil rose as a cold front shut wells and refineries in Texas, the biggest crude producing state in the United States, the world's biggest oil producer and also Yemen's Iran-aligned Houthi group said it struck airports in Saudi Arabia with drones, raising supply concerns in the world's biggest oil exporter. Both these factors seriously affect supply issue of crude and so we have seen crude gaining strength to strength. Barring Europe, cases worldwide of infection are decreasing so there is optimism that demand for crude will increase going forward. The global oil market is balanced and the current price of oil fully reflects this market situation.

The storm in the central part of the United States continues to play havoc with energy demand and has sent natural gas straight up in the air although the phenomenon is temporary. We will have a potential massive selloff as soon as supply comes back online. If market goes higher, then we will be looking for signs of exhaustion to sell as warmer temperatures coming in the next few weeks would be a major driver for prices to go much lower. Right now with high volatility, we would remain sideways and wait for market to show signs of exhaustion.

Recommendation
 

Buy Lead around 170 | TGT: 174 | Stop loss: 167

Lead is in overbought zone as RSI_14 is at 74, but there is no reversal chart pattern on the daily scale or divergence on momentum indicator. We are recommending long around 170 level as risk/reward ratio is more comfortable around that zone. Dips should be bought into until 167 holds, so buy around 170 for expected target of 174 and stoploss of 167 on a closing basis.

Crude Oil Sell below 4,300 | TGT: 4,150 | Stop loss: 4,400

Crude Oil is also in overbought state as RSI_14 is trading around 79 levels. Emergence of negative divergence in RSI_14 in overbought zone signals that prices are due for correction. Small candle bodies at the top end of the range also suggest that upside momentum may be getting exhausted. Short selling is only recommended below 4,300 as that is where the support is and we would get strong sell signal below that level. So, sell below 4,300 for expected target of 4,150, with stoploss of 4,400 on a closing basis.

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