CNBC: Crude can bounce back to $64-65/bbl: Safetrade Advisors
N Prasad, CEO, Safetrade Advisor, said crude can bounceback up to USD 64-65 per barrel. "It can make a small bounceback from here as it is looking oversold on the charts."
Here is a verbatim transcript of the exclusive interview with N Prasad on CNBC-TV18. Also watch the accompanying video.
Q: USD 61/bbl at this point seems to be holding support?
A: Certainly, crude has got a conditional support zone between USD 57 per barrel and USD 61 per barrel. Off late, crude is falling more, and lost with the Dow Jones trading in the stock market. Dow Jones is also touching its previous panic lows made about 8 days back and today it can recover to some extent, and give a supportive pullback to crude.
Crude can bounce back upto USD 64-65 per barrel, as on Friday OPEC has cut about 1.5 million barrel of production and that will have some sort of effect, even though not a full time effect as 15 years lowest demand is emerging. But, still we see that crude can make a small bounce back from here, as it is looking oversold on the charts. First time ever on the relative strength index, it is showing about 10, which has not been seen in the last 3-4 years. Even when crude traded at USD 50 per barrel on January 2007, the relative strength index was 24. So it looks oversold and battered. Now a dead cat bounce will emerge.
Q: How would you trade gold above USD 700 an ounce, is that a comfortable level for you?
A: Gold is a holding its beauty on Dhanteras Day in India. Gold is somewhat having a good level compared to Friday. But gold has a slightly bearish outlook, since there is lot of selling from funds, who had invested in fear last week, even though the dollar index was rising and dollar was rising against all the currencies. Gold made a brave attempt to make on rally up to USD 93 0an ounce. That was a relief rally for the year. So, people are disappointed and nervous and are offloading gold now.
So I feel on previous Friday, it made a panic loss of USD 682an ounce. This week also they can touch, once the panic lows. Usually, all the market before recovering from the act of sell off or anything, do touch their panic low. This is technically a foregone conclusion. So gold also has to make those levels.
Today, also it couldn’t retrace its close above the Fibonacci 38% retracement level, which was at USD 741 an ounce, compared to USD 932 an ounce to USD 684 per ounce, it should have closed well above USD 740 per ounce. Then we would have gone in to take the next level of USD 770 per ounce but it failed to. So I am expecting a bearish call on gold. Today, we can trade between USD 703 per ounce and USD 720 per ounce and in the later part of the week we can once again touch USD 682 per ounce.
Q: This is the fourth week when we have seen base metals continue to decline, but it seems to be just holding around those levels. Do you think the mine closures and production losses would support the prices now?
A: The biggest thing that is working on base metals is the demand and the relief rally actually turned into a bull rally in the earlier part of 2008, when the markets were bearish and signals were not good, housing sector was crashing.
Copper started making a big move in fear and expectation of this production cuts and mines cuts. But some index funds have pumped in lot of money in to this base metals buying earlier in the year.Now they have gone into losses because these prices are below the price they entered in the beginning of the year. So they are compulsorily selling off or redemption pressures are making them to sell off at whatever rate, they are not finding contra buyers.
This fear of supply or consumption takes another 3-4 months for it to act, because people are badly hurt in this. Commodities still have not completed their rout and sell-off is still something ahead in the future to come. There may be temporary bounces of up to Rs 210-212 per kg in the Indian price context.
But it is basically in a downtrend. The basic trade is 100 Day Moving Average (DMA) and is well below the 200 DMA. So it confirms the bear phase. So, in the bear phase the bounces will be fast and swift and we should not get tempted to buy them, rather, we should sell positions there. Copper can trade in this week between Rs 185-200/kg.
Q: Just to get a view on all of these commodities or metals. We have seen very heavy losses in the last one month; prices have declined anything between 35-45%. Do you think the whole pack is getting oversold and there could be some form of bottom forming here and rather than selling it is a good opportunity for buying maybe?
A: I just cannot accept this, because this sell off whatever has come, is not because of short selling or bombarding. This is re-rating because of currency. The US dollar has got strengthened and Euro has got battered. So as soon as the barter changes the value of the commodity changes.
It is not like a stock market. Stock market is something different where the valuations change. But here the barter value of the dollar is changing, these are dollar denominated. The dollar index is now at 87.47, and it is likely to touch USD 90, until the dollar – after the US elections, it is likely to weaken. Till then there is no respite for these commodities, there can be relief rallies. There can be sweet spots, please do not get tempted. There is still a lot of consolidation and confidence among the industrials and economy to invest in the commodities.
