Commodity outlook by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls:
Commodities Outlook: US Dollar index is hovering around 89.80. The level 90 seems to be its immediate resistance as, since past week, the dollar index is unable to move above that level. Start of the week, we saw US dollar declining after China announced new tariffs on US goods but has currently clawed back much of that loss. The price action suggests investor indecision and impending volatility. If we look at daily swing chart, the main trend still is down. Any price action above 90.05 will change the direction and trigger upside acceleration till 90.40 and 90.70. The price pattern suggests that we may see some more upside in US dollar looking at the emergence of buyers near levels of 89.40.
Gold and silver both witnessed roller coaster ride this week. Start of the week with China announcing new tariffs against US goods, safe haven buying emerged in gold and silver. However, that proved short-lived as on Wednesday we saw gold and silver giving up the gains it acquired as market perceived that the tension has eased. Gold is trading near its 38.2% retracement level in COMEX at $1328. The hourly and daily chart in COMEX both looks bearish and we expect some further weakness in both gold and silver. In MCX, because of weak Indian Rupee, MCX Gold and silver are getting some support and the overall trend in MCX Gold remains positive. Gold is trading above the short term up trendline and we expect any downside only when the trendline of 30,300 is breached. Silver is trading near the lower range and if it manages to close below 38000, we could see more downside till 37400. Out of gold and silver, gold looks better on a chart.
Crude oil got the breather in form of surprise drawdown of US Crude oil inventories on Wednesday. Crude oil again found resistance at $71 and corrected more than 3%; however, the correction seemed shallow as US crude inventories again pushed up prices higher. The primary trend is still positive and only below its 50% retracement of $66.50 can we see sellers gaining upper hand. In MCX, Crude oil has a clutter of support around levels of 3900-3960 so any serious correction can only come below that level. We expect crude oil to trade in a range of 4050-4250 next week.
Silver failed to cross 200 day moving average thrice in 2018. The recent swing high of 39300 and 39181 was where silver faced its resistance of 200 day moving average. Lower top accentuates buyers reluctance to follow up above the previous swing high and now silver is trading near the lower end of the range. Usually silver has bounced from this range but there is no divergence in oscillators which can show that the selling has slowed down. In fact, the short term moving average also indicates that the correction may continue and silver may take next support at its previous swing low around 37540. RSI_14 is trading below 50 at 43 which shows that the trend is weak and there is room below before any support can come. We advocate creating a short position with stop loss of 38400 and target around 37500.
Target: Rs 134
Among all base metals, aluminum is the only laggard as US is implementing tariff on Chinese export especially aluminum. So naturally, aluminum is the only metal that failed to lift despite other metals clearly recovering. Aluminum is trading near its previous low of 128.4 which it made in Dec 2017. Recently too aluminum made low of 128.80 and clawed back to 130. Clearly the chart pattern shows double bottom and positive divergence can also be seen. Introduction of positive divergence in RSI_14 at the support area do point that the rally may start in aluminum. The oscillator RSI_14 has also come from the oversold region and at present is trading at 32.2. So the oscillator has already given the reversal signal and chart pattern is confirming the reversal with emergence of hammer. We recommend going long in aluminum with closing basis stop loss of 127 and target of 134.
The analyst may have positions in any or all the stocks mentioned above.