Is the Metals Bull Market Over?

Jul 7, 2021

Vijay Bhambwani, Editor, Fast Profits Daily

In today's video, I talk about a market segment that's not exactly into equity stocks, but it impacts your equity share investments directly.

Commodities.

Is the commodity bull run over? Or is it just catching breath?

I answer these questions by addressing five base metals that are listed on the Multi-Commodity Exchange.

Watch the video and let me know your thoughts. I love to hear from you.

Hello friends. This is Vijay Bhambwani here. I'm back with you in this video to talk about a segment of the market that's not exactly into equity stocks, but it impacts your equity share investments absolutely directly.

I'm talking about the aspect of whether the commodity bull run is halting, tired, pausing, or has it completely reversed?

And I'm basically addressing the industrial metals or base metals specifically. Do remember that what I'm talking about in terms of these base metals will impact equity shares like Tata Steel, Hindalco, JSW Steel, Jindal Steel & Power, etc.

Read Now: We're Bullish on 2 Non-Nifty Stocks

So, I have chosen, the methodology is very simple. I have chosen the five base metals that are listed on the multi-commodity exchange in India, where, when I'm talking about these commodities I'm talking in terms of Indian rupees per kilogram as a unit.

So let us see whether the commodity markets in India have paused, reversed or are they only basically catching their breath?

Do remember that I have been saying I do not subscribe to the hypothesis of a supercycle in the base metal market, although, I do admit that these markets are in a bull market.

What is the difference? The difference is not so subtle.

In a supercycle like I have been saying in my past videos, the buyers are thrashing on the doors of the sellers and saying, "Please give me more stuff. Please give me more commodities. I'm willing to pay whatever you're asking for and more. But keep the goods coming".

That is not happening.

In a regular bull market, you will see the prices go up. There will be corrective declines, and then again, the rally resumes. This not a one sided market.

So, a commodity supercycle is not something that I subscribe to, although I will admit that there is a bull market and therefore your investment in commodity stocks will also be susceptible to price shocks whenever there is a corrective decline in the underlying commodities.

So I'm going to take a case by case, metal by metal study, and I'm going to point out the name of the company that will get directly involved, the company's share price that will get directly involved with the metal.

So, let's start alphabetically.

 

I'm beginning with Aluminum, which was approximately, I'm using the word approximately here, Rs 125 per kilogram in March 2020, when the markets bottomed out after the pandemic induced lockdown. It hit Rs 206-208 odd levels in May 2021. That was a huge rally and then there was a precipitous fall to Rs 184 levels approximately in June 2021.

Now, as per the classic Dow theory, a bear market ensues in any item if it surrenders 20% or more from its peak price.

So, if aluminum was to go into a bear market, it would have to surrender 20% from its peak at Rs 200 levels, which means Rs 40, it would have to go all the way down to Rs 160 levels, which it did not. It bottomed out at approximately Rs 184 levels and is now trading close to Rs 200 which means aluminum is not yet in a bear market, and the stocks that traders might have taken exposure to, basing their investment logic on aluminum prices would be Hindalco and NALCO.

These are two stocks that are immediately impacted by aluminum, which is not yet in a bear market.

Now, let's go to item number two, also happens to be the most critical commodity in terms of base metals to watch. This is Copper.

 

It's known as the '10 Roof of the Economy'. It's also known as 'Dr Copper' by commodity traders for the simple reason that without this commodity, nothing is possible.

Whether it's civil construction, whether it's electric, electronics, whether it is automobiles or anything at all, you can't do much without copper. So it's a proxy play of industrial activity in the economy, both global and national.

So, copper rose from approximately Rs 330 odd levels in March 2020 which is Rs per kilo. It went all the way up Rs 820 per kilo, somewhere around May 2021. After that, it fell sharply to Rs 690 odd levels in June 2021.

Do remember that if at all, it was to surrender 20% as per the classic Dow theory, it would have to give Rs 165 decline before you could say that it's turned into a bear market. But it did not and now, after having tested Rs 690 odd levels in June, it is back again to Rs 800 plus levels, so there is no question of a bear market here.

The stock that will be immediately impacted will be Hindustan Copper. Now, this is quite simply the most significant copper manufacturing, copper producing company in the country.

Of course, there will be other ancillary users of copper, which will be inversely related with copper prices because they are consuming it as a raw material. We are not touching those. We are basically looking at producers and miners of these metals.

Metal number three. I'm coming to Lead.

 

Now, this rose from Rs 118 odd levels in March 2020 to Rs 187 levels in June 2021. It's still trading around that level. And this has not seen much of a decline, therefore, no question of a bear market exists in lead either.

The item number four is a very interesting case here. This is Nickel.

 

This was approximately Rs 800 in March 2020, went all the way up to Rs 1,450 plus in April 2021 and it fell sharply to Rs 1,150 odd levels, thereby fulfilling the 20% threshold of the classic bear market theory, as per Dow technical analysis school of thought.

But it has recovered to Rs 1,375 plus levels immediately and therefore it does not remain in a bear market situation right now.

As long as it does not remain 20% below its peak and it makes a higher top or a new high above the previous peak of Rs 1,450 odd levels, I think it will basically put back all doubts about the possibility of a bear market.

The stock that will be immediately impacted by this metal will be Hindustan Copper, because it makes, it also produces Nickel.

Now Zinc.

 

This was Rs 125 odd per kilogram in March of 2020. It went to Rs 245 levels in June 2021. It's approximately still there, so therefore there is no question of a bear market in zinc because it hasn't really corrected much, and the stock that will be immediately impacted by the price of zinc is Hindustan Zinc, the most prominent producer of zinc.

So my friends, I've answered not only the question about whether there is a bear market in industrial commodities or it's just a breather or a pause. I've also taken up some stocks, which are likely to be directly impacted.

Now, for another question that I was asked about yesterday's video. And this is a video that I have recorded fairly often on Equitymaster, that oil is not going to go to US$100 a barrel.

Now, somebody asked me because of your videos, a lot of people will put back their decisions or hold their decisions of going long in crude oil because you're saying it will not go to US$100.

Please do note the difference between it will not go US$100 and you thinking that it will go to US$80-85.

When I've been recording videos on crude oil not going to US$100, it was lower than US$70 a barrel. It has crossed US$75 a barrel.

I'm still saying it will not go US$100 but if you had bought at sub US$70, would you have made money at US$75? Yes, of course, you would have made money because that is a short term call.

And what I am giving you is a longer term view that crude will not go to US$100, and there is still not any guarantee that I would play god and be 100% right.

I have also said that if it does go to US$100 plus, it will be a photo opportunity. It will touch and go, maybe even stay there for a couple of days, only to decline. I stand by that view.

But if you're a day trader, if you're a swing trader who thinks that you can scalp for US$2, 3, 4, 5 on the long side, of course you should try your hand at crude oil because your system supports so.

What I am talking about here is the bigger picture. As long as you keep that in mind, we are on the same page.

With this, I bid goodbye to you in this video, not before reminding you to subscribe to my YouTube channel, if you agree with what you saw.

Click on the bell icon to receive instant alerts about fresh videos being put up out here. In the comments section, do let me know what you think of this video. Good, bad or ugly, all your feedback is always welcome.

And help me reach out to fellow like-minded investors and traders by referring my video to your family and friends.

I wish you have a very, very profitable day my friends. Take very good care of your health, your investments, your trades, your family and friends. Thank you for your patience. Till we meet again in my next video. It's Vijay Bhambwani signing off for now.

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst

Recent Articles

Pyramiding PSU Bank Stocks September 22, 2023
How to trade PSU banking stocks now.
5 Smallcap Stocks to Add to Your Watchlist Right Now September 12, 2023
These smallcaps are looking good on the charts. Track them closely.
Vodafone Idea - Can Idea Change Your Life? September 6, 2023
What is the right way to trade Vodafone Idea?
Repro Books Ltd: The Next Multibagger Penny Stock? August 28, 2023
Is this the next big multibagger penny stock? Find out...

Equitymaster requests your view! Post a comment on "Is the Metals Bull Market Over?". Click here!