Commodity Markets Emerge as Safe Heaven in Economic Turmoil

MCX Gold futures headed for its consecutive second weekly advances and trading near to its 5 weeks high on the concerns about health of the world economy due to weak equities coupled with the on going festival demand in India. Gold also rebound on the expectation that the Federal Reserve may delay interest-rate increase, which further supported the upward movement. Festive demand from India and weak INR against U.S. Dollar acted as catalyst for positive movement in gold. MCX gold showed bullish movement for the entire week & closed with the marginal gain of more then 1 percent on the weekly basis.

COMEX Gold witnessed two weeks consecutive gains on concerns persistent fears over the health of the economy took a toll on global equities and the dollar, bringing in safe-haven demands for the yellow metal. Core retail sales, PPI & retail sales data also witnessed the negative outlook for U.S. Economy last week & increased the glitter of gold. Holdings in the World largest gold-backed fund, SPDR Gold Trust were rose 0.24 per cent to 760.94 tonnes on Thursday.

Silver witnessed range bound movement last week and tracked the global market trend. Silver witnessed slightly bullish movement in the initial part of the week due to short covering on lower levels & negative U.S. data, but till the end of week, all of its earlier gains were erased & it closed near to last week closing. Silver prices taking support from physical market due to strong seasonal period for consumption which can lead the prices upside. MCX Silver traded near 1 year 3 months low & COMEX Silver is still sustaining around to its 4 years low and trading above major psychological support level of $17.00

Physical demand of Gold & Silver has picked up slightly in India with the lower prices of these precious metals. Gold imports are estimated to have jumped about five-times to around 95 tonnes in September 2014 as compared to Gold imports in September 2013 around 15-20 tonnes, supported by spurt demand in festival season and falling global prices. Imports of gold rose mainly due to decline in price in global markets and September imports is a very normal phenomenon as jewelers require stocks to manufacture for the festive season. According to government data, gold imports were at $3750 million in September this year compared to $682.5 million in the same month last year. Indian jeweler have already manufactured jewelry of the gold imported during September for the festivals. The money earned from the sales of these jewelry will make them buy more gold in October and November, which may decline in December. Oil imports during September were valued at $ 14.4 billion which was 9.7 per cent higher imports in the corresponding period last year. Due to rise in Gold and Oil imports, India's trade deficit for September has widened to $14.25 billion which can also support the prices to trade higher in festive season.

MCX Gold traded on higher levels last week, it started the week on positive note and continued to trade higher. It sustained above the psychological level of 27000 and tested the level of 27600 on the up side. This week we can expect sideways to negative movement in MCX Gold December futures and it can test the levels of 27000 – 26800 on the downside.

Similarly MCX Silver also opened on positive note last week and traded in the range of 38300 – 39200 for the entire week. For this week, we can expect bearish positive movement in Silver MCX December futures & and it can test the levels of 37800 – 37500 on the downside.

For this week, major U.S. data Core CPI, Unemployment Claims and New home sales coupled with physical demand in Asian region will further provide direction to the bullions. Further progress in the quantitative easing by U. S. government will also provide base for the market movement.

Market Overview and Stock Recommendation for the week

Market Overview:

Week begun with the gap down opening and key benchmark index Nifty future recouped its intra-day losses.It registered weekly high of 7952 on Tuesday, 14th October taking positive cues from easing of CPI inflation at 6.46% & WPI inflation at 2.38%, but due to weak global markets, it traded with the negative sentiments and extended losses till the level of 7752.20 in remaining trading session. Nifty ended the week at 7815 with the net loss of 71.80 points ,as foreign portfolio investors were net seller this week also. Trend in global market, movement of rupee against dollar, crude oil prices may dictate the market movement in near term.

Technically, primary trend of the Nifty future is bullish, it is showing correction from past few weeks. In near term range bound movement can be observed in it. Resistance for Nifty future is at 7955, crossing of this can result in upside movement in index, while with the breach of its next support level of 7700 further correction can be seen.

 

Events to watch in upcoming weeks:

·         Opening of market for the upcoming week will depend upon the result of election held in Maharashtra & Haryana. Election commission will unveil results on Sunday 19th October 2014.

·         LIC Housing Finance, Ultratech Cements, Exide Industries, Hindustan Zinc, Idea Cellular Ltd., ACC, Biocon, Jsw Steel Limited, Asian Paints Ltd., HDFC, Kotak Mahindra Bank, ITC Ltd., Indian Overseas Bank, Jsw Energy, Power Grid will report their second quarter (July – September 2014 ) results in next week.

·         A special live trading session will be held on thursday, 23rd October 2014, on account of Muhurat trading on Diwali, it will be conducted between 18:30 IST to 19:30 IST.

·         FOMC ( Federal Open Market Committee next undertakes a monetary policy review at a two-day meeting on 28-29 October 2014.

 

Stock Recommendations:

BUY  ABIRLANUVO IN NSE CASH ABOVE 1670 WITH SL OF 1625 TGT 1715, 1750

The major trend of the stock is bullish. It is consolidating in short term below the resistance mark of 1670. It is sustaining above its 50 and 200 DMA with the RSI of 55. It is likely to continue its bull run with the crossing of its resistance level. Traders can go long in the stock above the level of 1670 for the target of 1715, Support is at 1625 which will act as stop loss for the stock.

BUY IDBI IN NSE CASH ABOVE 62.70 WITH SL OF 60.90 TGT 64.50,66

IDBI is accumulating below the resistance level of 62.70 after showing correction. Some upside movement can be observerd with the crossing of the above mentioned resistance level, One can take long position in the stock above the level of 62.70 and can keep target of 64.50. Support is at 60.90, which will act as stop loss for the stock.

BUY DISH TV IN NSE CASH ABOVE 55.50 WITH THE SL OF 52.50 TGTS 58.50, 61.50

The stock is trading sideways on the short term charts. It is sustaining below the major resistance mark of 55.50 and trading above 50 and 200 DMA with the RSI of 56.50. If it manages to cross its resistance mark it may show upside movement in upcoming sessions. Traders can expect targets of 58.50 and 61.50 in near term. Major stop loss of 52.50 acts as technical stop loss for the stock.

BUY NATIONAL ALUMINIUM IN NSE CASH ABOVE 61.60 WITH THE SL OF 57.20 TGTS 66, 70

After showing correction from the higher levels stock has formed reversal candle stick pattern on the daily charts. Currently it is sustaining below the resistance mark of 61.60 since positive bias. Stock is trading above 50 and 200 DMA. One can initiate long position above its resistance mark and expect targets of 66 and 70 near term. Stop loss level is at 57.20.

BUY BANK OF BARODA IN NSE CASH ABOVE 886 WITH THE SL OF 856 TGTS 906, 936

The stock has bounced from its major support and currently it is in accumulation phase. Stock is sustaining below the resistance mark of 886 since past few sessions. If it crosses this resistance it may continue its bullish trend in upcoming sessions where traders can get targets of 906 and 936. Immediate support of 856 can acts as technical stop loss for the stock.

Equity Outlook for the Week: Quarter Results and CPI numbers may decide the futures

Market Wrap Up:

Last week 50 Shares Index Nifty futures gave gap down opening and it extended its earlier losses. Later on Nifty futures tested its major support of 7850 and bounced from there, but at the end of weekly session due to weak global cues it slipped and closed at 7886.80 with the net weekly loss of 96.85.

IT major Infosys Surged more than 6 percent post higher than expected earnings. Crude oil prices continue to be at lower levels because of which Oil stocks rallied, Paints & Tyre stocks also out performed on decline in crude prices. as a large part of their raw materials consists of oil coordinates.

 

Technical Over view:

Over all breadth of the market is weak. Currently Nifty futures is sustaining above the major support mark of 7850 if it breaches this support it may show further downside movement and can test its next major support level of 7700 in near term. Resistance for the Nifty Futures is at 8015 and 8085.

 

Open Interest Analysis:

On the call options front addition of open interest was witnessed in last trading session at strike price of 8200 & 8300. On the put options front we have seen addition of open interest in last trading session at strike price of 7800 & 7700. In coming sessions market may trade in a range of 7700 & 8300 . On the call option front strike price with the highest open interest i.e. 8200 & 8300 may act as good resistance on the up side whereas on the put option front strike price with the highest open interest i.e. 8000 & 7900 may act as a support on the downside.

Support for Nifty Future : 7800,7700

Resistance for Nifty Future : 8200,8300

 

Upcoming Events:

1.Traders should keep an eye on CPI numbers to be declared on Monday October 13, Polls are expecting it to be lower at 7.20 % for August month as compared to 7.80% of previous month.

2.Results of major companies Reliance, LIC housing Finance, Crompton Greaves, TCS, Bajaj Auto, HCL Tech, Axis Bank, Indusind Bank .

3.Whole Sale Price Index is also scheduled on Tuesday October 14. Estimates are showing that it may ease to 3.30% for September month then    3.74% a month earlier.

Commodity Outlook for the Week, weakened Chinese economy and a strong dollar dampens sentiments

MCX Gold futures headed for its biggest weekly advance since Aug-2014 as slump in equities and growing worries over the global economy attracted safe-haven bids for the metal. Central bank (RBI) keeping the repo and reverse repo rates unchanged at 8 percent and 7 percent respectively acted as a negative factor for the Indian Rupee which further supported positive sentiments in gold. Widening of the Current Account Deficit (CAD) and uplift of coal ban by the Supreme Court increased worries for the rise in CAD in future. Instead of weekly gain, gold prices seen to pressurized on international cues as Dollar Index that measures dollar movements against a basket of six currencies traded on a positive note on the back of expectations that US Federal Reserve will round up its QE tapering program in its meeting scheduled on 28-29 October 2014.
 
Global commodity prices are falling, the main reason stated around the globe for this continuing dull run in commodities is the slowing demand for crude oil, agricultural products, metals and bullion from the world’s largest consumer China. Crash in the prices of hot commodities like gold, copper, iron ore, coal and crude oil is a sure sign and reflection that the US dollar is getting strengthened on the back of a recovering global economy. The impact of falling commodity prices on countries differs as per economic dependencies. As these key natural resources have been difficult to source on their high prices earlier for Indian companies; now that their prices are down, Indian companies are stepping up their manufacturing activities.
 
COMEX Gold headed for the biggest weekly gain since Jun-2014 and last week traded above its major support level of $1180. Gold as an asset class is losing its significance as a part of investors portfolio and this is the reason for investors to dump the yellow metal and invest in risky assets like equities. Gold is also on track to post its first quarterly loss of the year, though it is still up about 1 percent for the year. The dollar index has been the driving factor for the decline in gold prices in the recent weeks. The index gained around 3.54 percent last month and traded at its highest point in the last four years. The expectations of monetary tightening by the Fed in turn created optimism and exerted downside pressure on prices. Holdings in the SPDR Gold Trust, the biggest gold-backed exchange-traded product, said its holdings fell by 5.39 tonnes to 762.08 tonnes on Thursday on weekly basis, the least since December 2008.
 
Silver along with gold declining on speculative interest and declined around 10 percent in Sept-14. In the Indian markets, Silver prices lost its value around 7 percent taking cues from weakness in the international market. The CFTC (U.S. Commodities Future Trading Commission) positioning in Silver indicates that money managers have been reducing their exposure in Silver for last 6 weeks. Net shorts as on 30th Sept-14 stood at 6073 contracts when compared to net longs of 13718 contracts as on 26th Aug-14, exerting downside pressure on prices.
 
Last week, MCX gold tracked international trends and witnessed up-trend. It opened on weak note but it did not sustain below the level of 26500 & showed bullish trend for the entire week and test the level of 27000 on the higher side. Overall, Gold is still looking weak on the charts and this week, MCX gold Dec can again move downward and can test the level of 26500. Similarly, last week MCX Silver remained sideways to positive but could not sustain above the level of 39000. MCX Silver is also looking weak on charts and this week MCX Silver Dec can move downward  and can test the levels of 37800 – 37500.
 
For this week, major U.S. Data like Core retail sales, PPI, Unemployment change, Building permits and Consumer Sentiment coupled with physical demand in Asian region will further provide direction to the bullion. 

Market to Operate on a Flat Note, Owing to Lack of Trading Cues

Market which Opened after a 5 days hiatus, opened on a Flat Note and went down hill, selling pressure on the market because of Poor Industrial Production Data From Germany which signaled a weak European Economy in trouble, as Germany has been the main stay for the economy still not fully recovered from Euro-Zone Crisis. This was the worst Performance of German Manufacturing Post Financial Crisis. 

The Wall Street which was on a high after a touching a high of 2 Months, also nursed loses  worries about slowing global growth impacted nerves of Investors as they invested in safe Haven US Bonds. The Next US Event which will be of Significance to Indian Markets will be Minutes of the Federal Reserve  Policy Meet expected to be released soon, which will Impact Global Markets.

The IMF reduced the Projected Global Growth rate from 3.4% to 3.3% which is on the back of Euro-Crisis Fear of still  being far from over, also a decline in growth of Brazil which is at 1%, which in some way could benefit India, as Other Countries of BRIC Group struggle, with Russia facing ire of US on Ukraine Crisis, China Growth Seemingly Slowing Down, India Offer a safe heaven, with Stable Government and Big Market. Chinese Market will be closed till 8th Oct. 

Commodity Outlook: MCX Gold December Futures will also be under selling Pressure, with support levels of 26,200/25,900 level acting as big support and 27,100/27,500 resistance levels.  MCX Silver December Futures is also looking bearish with 40,000/41,800 acting as big resistance, and 35,800/34,500 as big support. Crude is also back in demand with resurgent American Economy. Copper Futures is also at its five months low trading at 3 dollars for a pound this could be attributed to European Markets. The Base Metals are expected to trade with a negative Bias because of Supply Constraints, and Strong Dollars Keeping Them in Check.   

Equity Markets: The Indian Equity Markets have been facing correction of late from Weak Global cues, with Market Expected to trade between 7700 and 8300, with support levels of 8,000 and 7,900. The Internal Factors which will Impact the Market in a major Way, will be Industrial Production(IIP) data to be released on 10th October, the second quarter earnings of Companies like Infosys will also be released on same day. 

The Activity in Market will be stock specific, as no Major Sectoral News is Expected to Move Markets, Markets will be Range Bound and should show flat movement throughout trading Today.