Home > Uncategorized > MARKET NOTES: We are very close to a bear rally top

MARKET NOTES: We are very close to a bear rally top

MARKET NOTES:  We are very close to a bear rally market top.

 

Bear market rally tops are extremely difficult to call out as they are driven by short covering.  They generally tend to overshoot logical targets especially towards the fag end of a long correction.  Nevertheless, nothing has occurred in the market since the last blog post to suggest that [a] we are not in a bear rally and [b] that the markets are not likely to top out at around these levels.

 

Russel 2000:  This index represent a wide range of mid-cap stocks in the US equity markets and is in many ways the key to understanding the bull in this bull market.  First, the index topped off at 855 on 7th July 2007, at the top of the last bull markets.  It crashed from those levels to 343 in March 2009.  But here is the surprise.  In the subsequent rally bear rally from the lows of 2009, it made a new top at 862 on 29th April 2011, higher than the bull market rally top in 2007!  That tells you of the volatility in this index and the underlying mid-cap stocks.  After the head fake in April 2011, the index made a low of 610 and has since rallied to 833 this week.  The last blog post had indicated that the Russel 2000 would break through the 800 levels.  Technically, there is nothing to stop the index from going right up to 860 levels again.  The index could linger here for a week or more as it distributes.  However it is over-bought and has significant gaps on the way up that suggest exhaustion.  A reversal in this index will be the first confirmation that the bear rally is over.  Incidentally, The Russel 2000 will be making a triple top at 860 if it manages to rally up to that level.

 

S&P 500:  The index has a formidable overhead resistance at 1350 followed by the previous top of this rally at 1370.  The index is not terribly over-bought which suggest room for further rally from its current level at 1326.  A rally beyond 1370 is highly unlikely.  Time wise, the index can continue in this range for another week or two but remember bear rallies are fickle and terminate abruptly.  Advocate caution for those playing bulls.  Same caution applies to early bears.  You feed the bulls!

 

Shanghai Composite:  The Chinese market continued an orderly climb up from its recent bottom at 2130.  Significantly, the market closed the Friday session at 2330.4 a touch above its major overhead resistance at 2323 that would confirm a shy at the next logical target at 2550.  Remain cautiously bullish on the Chinese market.  Pertinent to note that while Chinese stocks have not ignored the ebb and flow of world equity markets, they nevertheless ploughed a very orderly correction down from the 2007 top defying the shenanigan in the US.  That gives grounds to hope that they continue to climb despite the anticipated correction in US equity markets.  To early to say if China and US equity markets have delinked but the current posture – one at the top, the other at the bottom of their respective trading ranges – suggests such a possibility.  Time will tell.  Maintain bullish posture on China barring the usual correction.

 

Sensex:  The index runs into the upper end of the downward trending channel at 17,650, which is its first overhead resistance from current levels.  A breach of the same this late in a ongoing bear correction would not be surprising.  Beyond that major overhead exists at 18,000.  While the Sensex may linger here in sympathy with Russel 2000 and the S&P 500, there is nothing to indicate that the bear move down has been exhausted in terms of wave counts and time.  On the short-term oscillators, the index is highly over bought and due for a correction.  Worth repeating the caution that bear rallies are sharp, unpredictable but can terminate abruptly.  Highly dangerous to play them from the bull side and early bears can get mauled.

 

$-Index:  The $ fell through the first major support at 79.5 from the recent top at 82.  It has since tried to rally past 79.5 but failed to do so.  The next logical target for the $-Index is 78.  A break of 79.5 has confirmed the earlier prognosis that 82 was a bear rally top and we are now headed for a longish correction on the $ all the way to 72.  Should that happen, all the traditional correlation between $ and equity, commodity markets will be called into question.  Interesting times are ahead for traders.

 

Euro-$:  The Euro has been banging at its overhead resistance at 1.32 but without success so far.  Recall, Euro made a recent top at 1.495 in May last year and has been on the way down since then.  The structure of the waves down suggest the fall was terminated at 1.266 in January this year and the Euro is now headed into a bull run back to 1.5 levels.  Its first major overhead resistance was at 1.32, where it has been stuck for a while.  To me this suggests a coiling up for an explosive move up or down.  The balance of probabilities suggests a sharp move up once the Euro breaks the 1.32 barrier.  Stay tuned to this explosive move cause it will change major equations in the currency markets.

 

$-INR:  The $ is grossly oversold against the Indian Rupee.  On short term stochastic alone one would expect a sharp rally in the $ against INR.  RBI has placed draconian restrictions on forward cover to prop up the Rupee, which are distorting the true market.  There is little validity to the current Rupee value.  Expect a sharp rally in the $ as RBI removes trading curbs on the India forex markets.

 

Gold:   Gold turned sharply down from $1760.  Technically there is nothing to stop Gold from rallying right up to $1800 especially as the oscillators don’t signal it is over-bought.  However, I remain bearish on Gold in the medium term and don’t expect a rally past $1800 in this rally.  A word of caution is due though.  As indicated in the discussion on the $, a lot of traditionally accepted correlations in the equity and asset markets are undergoing a churn.  Gold will not be exempt if the $ turns down.  However, nothing on the charts suggests Gold bullishness at this point.

 

NYMEX Crude:  Crude turned up from close to 95 and currently stands at $97.8.  Crude has a major overhead resistance at 103.5 and could head for that level in the coming days.  Interesting things could happen in crude once it breaks past that level.  Too early to say if the pattern unfolding on the charts indicates a blow out rally past $115.  Watch the $103.5 level carefully for further developments in the oil market.  Crude appears oversold but not by all that much.

 

Copper:   Copper appears to making another shy at the 4.0 price level which is its major overhead resistance.  A break past 4.0 would confirm the bullish prognosis for the Chinese equity market that the Shanghai Composite index suggests.

 

 

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 decision.

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Categories: Uncategorized
  1. shailesh mor
    February 5, 2012 at 4:40 am

    Hi Sonali

    Your readings on the index are very interesting. Just curious to know your knowledge base to arrive at the same. In other words I am interested in knowing how u arrive at these readings.

    Thanks……Shailesh

  2. Ajit Singh
    February 6, 2012 at 10:26 am

    Nymex crude has been making lower Highs and lows after it made a high of 103.5 on 4th of of jan. Crude exhibits seasonality and mar april has always been the strong months. so we might see strong movement in late feb and march, but for now crude doesnt look strong enough

    that was my opinion

    Though i dont trader INR/USD, i just follow it for my own curiosity. text economics suggest that high deficit economies will have a depreciating currency, with such inept government at helms i dont see deficit situation improving anytime soon. INR rallied because RBI put stringent controls on INR USD trades,, As such controls will be done away with, INR will be shown it real value

    I concur to your views on $ index and gold

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