Trading strategies for natural gas and aluminium by Tradebulls Securities

Gold has recovered more than $50 in the last two days on hope of stimulus and record number of Covid-19 cases worldwide. All eyes are on more stimulus as the US policymakers continue to debate the coronavirus relief package and a $1.4 trillion spending bill, with Friday being viewed as the deadline to avoid a government shutdown. Since November 2, the 50-day moving average has become impenetrable and once gold breaches $1,879, it can go till $1,900. On Tuesday, too, gold reversed from the 50 DMA. However, gold’s upside seems capped as vaccine rollout will help economy recover faster, taking the shine of gold. The only thing keeping gold up is the expectation of inflationary pressure as more stimulus will make way for rise in inflation. Inflation expectations will be one of the primary drivers for gold in 2021.

Gold and silver bulls have gained some technical momentum to suggest near-term market bottoms are in place. Silver has resistance around $26 and needs to break that level for further upside momentum. There is plenty of support underneath right now for silver to continue to push prices higher, especially at the $22 level where we see the 200 day EMA in the bottom of the recent consolidation. Silver speculators longs have risen further with weekly rise of 2,212 net contracts from the previous week.

Oil prices have slipped after API reported higher than expected inventory. Vaccine news have given strong return to crude oil prices and OPEC meet have been taken in stride by the market of production increase and checking every month production quota. Retail trader data shows 49.71 per cent of traders are net-long with the ratio of traders short to long at 1.01 to 1. So, bears and bulls both have equal footing and net sellers have covered some of their positions. Any serious correction can only come below 3250 in MCX and till then it would be buy on dips strategy.

Natural Gas prices are languishing at lower levels following lower heating demand expectation. Given current weather model projections, the outlook remains stubbornly bearish still. Despite bearish outlook, inventory is still undersupplied by 2 Bcf/d so if weather outlook turns colder, then we could see sharp increase in prices. The level of 174-172 is likely to be the base for Natural Gas this month and would be good opportunity to go long around that area.

Recommendations

Buy Natural Gas around 178 | TGT: 190 | Stoploss: 172

Natural Gas has made ‘hammer’ after sharp fall from 217 to 177. The follow-up candle was ‘Harami’, so, naturally, Natural Gas is trying to make base around the current level. Prices are far from 20 and 50 DMA and RSI is becoming stable around 40. So we would recommend buy around 178 for expected target of 190 and stoploss of 172

Sell Aluminum | TGT: 158 | Stoploss: 167

Aluminum had made ‘Bearish belt hold’ candlestick pattern at the top end of the range when RSI was in overbought region of 72. These suggest that near term top has been established and we might see pullback till levels of 158 before uptrend resumes. Prices are taking support at 20 DMA and once that breaches, we may see next level of support coming at 50 DMA which is 157.70. So we recommend short with expected down fall till 158 and stoploss of 167 on a closing basis.

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

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