Home > Uncategorized > Market Notes: 2011 ended flat but there were fortunes to be made & lost.

Market Notes: 2011 ended flat but there were fortunes to be made & lost.

 

Market Notes: 2011 ended flat but there were fortunes to be made & lost.

 

$-Index:  As extreme pessimism hit the Euro, the $ rallied to its overhead resistance at 81 but appeared in no hurry to breach it.  While it could still make an attempt, or even fake a head above 81, the probability of the $ heading towards the first floor at 76 appear higher.  Expect the $-Index rally to fade from here.  Have a feeling, the $-Index is going to be the key driver of world markets in 2012.  Watch it like a hawk.

 

Euro:  Euro has a significant floor at 1.26.  As per script it is heading towards that area.  On the time charts, there is room for the Euro to test that area in the first few weeks of 2012.  However, barring a catastrophe, hard to see what more disaster in the EU could take it past that level.  On the other hand, a significant rally could take hold from the 1.26 area.  There is a rock solid floor below 1.26 at 1.20. I would not be selling Euros at these levels.

 

Gold:  During the week, Gold nicked the $1550 mark in cash markets on thin volumes but did not breach the floor convincingly.  Expect the metal to retest this resistance in the coming week.  A breach of this level would open the way to $1400.  On the other hand, a failure to do so would see the metal rally back to $1620 level.  Either way, the metal shows no sign of bottoming out yet.  At best, a weakening $ would help the metal in a bear rally.

 

NYMEX Crude:  Crude continues its recent rally from $76 level that was touched in early October and has paused for consolidation at the psychological mark of $100.  The more significant resistance lies at $115.  Crude shows no sign of weakness and should test $115 in the coming weeks helped by a weakening $.  Note the fact that crude prices have not weakened in line with the dip in equity markets or in deference to the pervasive doom and gloom.  While this could reflect resilience in the Crude market, it may also be a pointer to the fact that the gloom and doom are over done in the short term.

 

Copper:  Copper, unlike crude, shows no sign of strength.  As a proxy for world industrial activity, that’s bearish.  Copper is however dealing with some significant structural problems in the Chinese markets.  Nevertheless, weakness in the Copper markets is a cautionary flag.  That said, Copper has a significant floor at 3.0 that is unlikely to be breached in a hurry.  Upon a retest of that level in weeks ahead, the metal could rally modestly to 3.75.

 

S&P 500:  1270, which is also the 200 DMA area for the index, is the critical level to be watched in the next week or so.  A break above 1270 would open the way for a retest of the recent high of 1370 that was seen in May 2011.  A failure to do shows up the abyss leading to 1000.  In fact it might be that we cannot go to 1000 in the New Year unless we go to 1370 in the short term.  Mind there is nothing on the charts that makes this case except for the fact that 1270 has been tested 3 times and such important resistances usually break on the 4th or the 5th attempt.  On the other hand, considering the rally from the low of 675 in March, 2009 as a whole, we are at place in time where the a rally would be very weak and led purely by shorts taking profits countered by late sellers selling into the rally.  This tug of war between two weak sets of players can continue in the next few weeks.  Test of 1270 will be the first indication which of the two weak players has an upper hand.  There is little doubt that broad sentiment favors a fall which sort of leads one to suspect that overdone skepticism could trap the early bears into a rally.  1270 will tell.

 

Shanghai Composite:  The Chinese index at 2200 is way past over due for a rally in terms of time and level. It is oversold in line the pervasive negativity on China.  Chinese market behavior has a way of going past the edge at turning points and this time may be no different.  It does test once patience though and throws all chart assumptions into disarray.  But then markets are supposed to test conviction.  Cannot say when, but a rally of sorts is overdue in China and could happen in line with the S&P 500.  For long-term investors in China, the downside from here is limited.

 

Sensex:  The Sensex is a picture of weakness.  It is headed for a retest of 15,000 a level it is likely to breach.  While a plunge to 12,600 may not happen immediately, and there could be intermediate rallies from 14,500 area, the main trend remains down.  Incidentally, the Indian index’s correlation with the world equity markets has weakened considerably over the last few months as bearish sentiment takes firmer hold. There is tremendous amount of bad news flow ahead for Indian markets.

 

INR:  The Rupee continues to weaken after some RBI effort to stem the slide.  RBI’s war chest is empty and better preserved to defend the Rupee at a level where the downside is limited.  That would be the area around 58.  Expect no significant rally in the Rupee until March.  One could see a small rally of sorts there if India manages to successfully negotiate its way through India Inc.’s Foreign Convertible Bonds folly.  Until then things look pretty bleak.

 

NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

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Categories: Uncategorized
  1. David Pimm
    January 1, 2012 at 7:33 am

    Nice thoughts, I agree in particular with the Euro comments. There is only so much more capacity for shorting of the Euro that hedge funds have left, limiting the downside risk of the currency. Not sure if you cover US Treasuries, I started my posting with short piece about them that you may (or may not) find useful or interesting. http://pimmtrading.blogspot.com/2011/12/us-t-note-short-trade.html.

    Keep up the good work 🙂

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