Commodity outlook by Tradebulls Securities: Buy Zinc, sell Natural Gas

Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls.

Trading Strategy

Indian rupee recovered smartly to trade sub Rs 71.50/dollar on the back of strong Yuan after China postponed implementing tariffs and sending an olive branch to US. USD/CNY is trading at 7.08 from last week’s 7.15 prompting our rupee to strengthen from 72.62 to 71.50. Going forward, we expect rupee to test levels of 71.30-71.20 before consolidating. Next week’s US Fed will also play an important role in giving further direction to our rupee. Any rate cut from the US will weaken US Dollar and may appreciate our rupee. Rupee is expected to trade in the range of 71.20-71.90 this week.

Gold has been pushed below $1,500 and tested its support of $1,484 before bouncing back to $1,495. Strong US equity market and rebound in bond yields have pushed gold and silver prices down. The correction was much needed and for short term, bullions are expected to remain in downward pressure but overall, we are very much bullish in precious metals. Next week’s Fed rate cut will also pave for further direction in bullions. 'Buy on dips' strategy still exist as long as $1,475 is not breached. 
Any rate cut should help gold/silver prices propel upward. Gold has strong support around Rs 36,800 and we expect gold to bottom out around that level. In Silver, we expect Rs 44,450 support to hold. Silver continues to outperform gold but now we believe Gold/Silver ratio is at par; so going forward, gold would be our first preference.

Crude oil fell despite higher-than-expected inventory withdrawal from the US as investors are worried about demand side weakness. Brent crude is trading around $61 and reason for the fall in crude oil prices are US President Trump firing Bolton after which investors are anticipating somewhat ease in the tension of US-Iran and Iran’s oil flowing into the market. Crude oil once again has come back into its familiar range of Rs 3,850 - Rs 4,100. We expect crude oil to remain confined in this range as there is no news to trigger any volatility or break out from the said range.

Buy Zinc

Target: Rs 192 

Stop loss: Rs 184

After consolidating and taking support at Rs 180.60, zinc has bounced strongly till Rs 186. The short-term moving average of 13 and 20 has given buy signal crossover and RSI_14 is trading above 50 giving extra confirmation of buy signal. It has minor resistance around Rs 190 and if it manages to breach that level, we can see it going till Rs 192 so buy at current level with an expected target of Rs 192 and stop loss of Rs 184.

Sell Natural Gas

Target: Rs 173 

Stop loss: Rs 195

Natural Gas has seen sharp upmove from Rs 152 to Rs 191 in short term. RSI_14 has also been in the overbought region from 78.80 and has now reversed back to 69.90. On the daily scale, the uptrend has seen pause around Rs 191, which happens to be its 200-day moving average (DMA). So Rs 191 - Rs 193 is strong resistance zone for it. Natural Gas made 'Bearish Belt Hold’ Candlestick pattern on Thursday which again gives confirmation of selling pressure and we expect it to ease near Rs 175 - Rs 173 levels. So, sell with stop loss of Rs 195 closing basis.


Disclaimer: The analyst may have positions in any or all the commodities mentioned above.