Trading strategies for Natural Gas and Aluminum by Tradebulls Securities

Gold price is awaiting clear direction with hurdles seen around $1,900 levels. We might see range bound movement till 4th Jan. The recent surge in new strain of coronavirus is keeping gold prices steady but there is no additional incentive for gold to go up further. The stimulus news has already paid out as gold could not sustain the momentum after the news at the start of the week. The final decision of additional stimulus may prop gold prices up but till then, we expect prices to remain sideways.  Next support for gold comes at $1,865. Central banks will keep easy policy in place which sets up narrative for gold to kick start the New Year strongly but with baby steps. Buyers will have to firstly show their mettle in breaking the key technical levels above $1900.

Gold/silver ratio is currently consolidating in the range between 72 and 74. Due to holiday season, volatity and volume has decreased but it will be interesting to see what the ratio would be during the next week. If the ratio settles below 72, we may see silver outperforming gold. Silver has strong support at $25 and if it breaches that level, we may see more selling pressure. Any material moves will likely take place during the next week.

Since the past three days, crude is restricted in the range of 3,500-3,600. The stimulus has given some upside to crude but has failed to sustain at higher levels. The front-end of the brent curve has moved back into contango, a sign of bearishness for the time being. On Tuesday, API reported larger than expected draw in crude which helped prices remain stable. Retail trader data show 48.90 per cent of traders are net-long with the ratio of traders short to long at 1.05 to 1. Traders are slightly more on shorter side than on longer side indicating there might be just hint of bearishness in near term. Interesting point is that US oil demand isn't dropping more meaningfully amid renewed lockdowns and peaking Covid cases is essentially the same as a demand recovery.

While weather models remain unsupportive at the moment, the 2021 futures curve is averaging at just $2.58/MMBtu, which would make sense in a market that has no deficit. Following massive drop, natural gas prices have started recovering.  Risk/reward is more biased on the upside. This is especially the case considering that the market has mostly priced in the outlook for very bearish weather, so any improvement will prove to be a surprise to the upside.

Recommendation:

Buy Natural Gas | TGT: 202 | Stoploss: 164

Natural Gas has taken support at its 200 DMA on daily scale. Besides, RSI_14 has bounced from lows of 31 to 41 right now. After taking support at 200 DMA, natural gas made bullish candle indicating bulls trying to stage comeback. Fundamentally, we are not expecting runaway rally but on risk/reward basis, we are more biased on the upside. So we recommend going long with expected target of 202 and stoploss of 164 closing basis.

Sell Aluminum | TGT: 158 | Stoploss: 165

Momentum in Aluminum is slowing down as prices are below 20 DMA first time in 2 months. It has support at its 50 DMA but RSI_14 is making lower high and lower low indicating weakness in trend. After making 'Hanging man' candlestick pattern, follow up candles are all red indicating sellers are taking control. So we recommend going short with stoploss of 165 closing basis and expected target of 158.

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