Home > Uncategorized > MARKET NOTES: The upside to most major markets is firmly capped from here.

MARKET NOTES: The upside to most major markets is firmly capped from here.

 

MARKET NOTES:  The upside to most major markets is firmly capped from here.

 

 

Gold:  I appear have angered quite a few firangi gold salesmen who have thrived on selling useless and deflationary gold trinkets to the naïve natives in return for real money and jobs in their home countries.  A couple of them have even tried bullying me on twitter and by email.  Nevertheless, I have bad news for gold bugs.

 

To my mind, Gold commenced its decline from the top $1902 on 6th September 2011, and completed the first leg of its fall on 29th December 2011 at the price point of $1546.  Since then, gold has been in a corrective move up and likely topped out at $1760 on 2nd February 2012.  It has made a series of lower tops and bottoms since then and currently stands at $1719.  The top at $1760 is the third lower top since Gold commenced its downtrend.  There is little doubt that gold is in a bearish phase and one would be foolish to buy into the metal until there is clear evidence that the bearish trend has been reversed.

 

The angst of the gold salesmen at my blog is understandable.  But I maintain my view that Gold is in a long-term downtrend and the current phase of the decline will likely take the price to the $1550 region or even below it by the middle of March 2012.

 

Note the Rupee price of Gold in India is a function of the international price, taxes and the exchange value of the Rupee.  Rupee depreciation partly masks the actual decline in the price of the metal in international markets but will not be sufficient to make up for it in Rupee terms except for very short transient periods.  Gold is a very dumb investment in a bear market.

 

I have blogged on the deflationary impact of India’s gold imports over the last 3 years.  To recap the argument, in just 2011, India imported about 1000 MTs of gold valued at $65 billion.  This amount of money, taken out of the system should be compared to the fiscal deficit of the Government, which would be about 5.6% of the GDP or roughly $78.4 billion.  In effect Government’s fiscal deficit contracted from about $60 odd billion dollars in 2110 to a surplus of $5 billion in 2011.  Is there any wonder than that economy has tanked, manufacturing growth is down to 2% and corporate profitability has collapsed in a wide range of blue chips?  As I have said many times, our gold fetish is socially ruinous for India.  More is the pity that we are helpless to shed it.

 

 

To firangi gold salesmen, we are like the busy bees that work ceaselessly to collect honey in a hive until they arrive to take it away by selling us a useless piece of metal.  Why would they not be angry to see a blog speak against gold?

 

Mind my bearishness in Gold isn’t a matter of ideology. It is simply a reading of the market.

 

 

$-Index:  As my last post suggested, the $ continues to be in a downtrend after confirming a break below 79.5.  Despite the sharp spike up from 78.4 to 78.65 yesterday, I maintain my bearish view that the $ next logical target on the $-Index is 78, followed by a more substantial floor at 76.5.  It won’t be a one-way fall but the downtrend is clear enough.  And no, $ bearishness doesn’t imply gold bullishness unless we see evidence of that correlation in the charts or the marketplace.

 

 

Euro-$:  The Euro has been in an uptrend from its recent low 1.26, a floor that was correctly predicted by this blog firangis may note.  It made a recent top at 1.3320, which is a minor overhead resistance, followed by a major overhead at 1.3550.  The sharp correction down to 1.31730 on Friday does not negate the uptrend in the Euro.  It could just be an orderly correction before the Euro heads to the 1.35 area.  Despite the negative flow of news from Greece on Friday, nothing on the charts suggests a break down in the Euro.  That view is consistent with $ bearishness.

 

 

$-INR:  As blogged in the last post, the $ promptly reversed course from the anticipated floor of 48.5 to the Indian Rupee and resumed its upward journey.  What was significant in the reversal is the fact that the previous top of 48 that has held since 2002 is now confirmed as a long-term floor for the Rupee.  It should hold for a long time to come.  We aren’t going to return to sub-48 level for the $ in a hurry.

 

The journey back to 54 levels will be more orderly this time with many corrections like the one on Friday on the way.  But to my mind, the next target for the Rupee is 51 followed by a major overhead resistance at 54.  It would be a pity if RBI persists with its curbs on forward trading in the $ to limit the depreciation in the Indian currency.  The curbs are self-defeating in the long term.

 

 

 

Russel 2000:  As expected by this blog, Russel 2000 has turned at its first overhead resistance in the 835 area.  It is significant that 835 marks the upper end of the downward sloping channel from its top at 868 on 29th April last year.  On the other hand, the fall from 835 to 813 has only filled the gap in the up move and doesn’t confirm a trend reversal so far.  So the index could linger here for a while but its upside is firmly capped at 860.  Hence there isn’t all that much to gain by entering the market now.  A clear break out above 860 would completely change the picture but hard to see that happening.

 

 

 

S&P 500:  The index achieved its predicted target at 1350.  Firangis may not this was predicted by my blog weeks before the fact when they were bearish.  Not surprising therefore that it has turned from the resistance at 1350.  In terms of time, the index can mark time in the 1350 area for a one or two weeks more but its upside appears capped at 1370.  A break out above 1370 might necessitate a fresh look at the markets.  But the rally is now old, mature and oscillators indicate tiredness.  Hence the probability of a break above 1370 is miniscule.  Entry into the market at this stage is strictly for suckers.

 

 

NASDAQ:  Including this index for the first time because it presents some interesting insights into how this bear rally may top out given Apple’s rather large weightage in the market and the distribution strategy of bulls.  From the last major low of 1244 to all time peak of 5147, the point at 3195 marks the 50% retracement level.  On the charts, the NASDAQ has a significant resistance at 3051 followed by a more substantial resistance in the 3200 area.

 

In short, while Russel 2000 and S&P 500 have immediate obvious caps on the charts, NASDAQ has room for room for a further rally after clearing the top at 2864 with gap and a breakout.  That is a good 7% further possible rally on the index from current level.  Very unlikely that bulls will forego that “opportunity” to distribute some tech stocks.  You have been warned.

 

 

Shanghai Composite:  The only market on which I am bullish is the Chinese market.  Despite all odds, this blog called the bottom correctly at 2110 on the index and has since been consistently bullish.

 

The index continues it steady orderly climb upwards just as you would expect at the beginning of a solid rally.  The Index had its first major overhead resistance at 2323 as indicated in the last post.  That resistance was pierced rather convincingly in the past week conforming the onset of a sustainable rally whose next logical target is now 2540, about 8% away from current levels.  Continue to be bullish on the Index.

 

One must wonder though how the index will react if the world markets turn down as I anticipate.  As noted in my last blog post, there are good reasons to believe that the Chinese market will ebb & flow with world markets but still maintain its upward bias.

 

 

Sensex:  The Sensex rally has stalled just under its major overhead resistance at 18,000.  Hard to see the index going anywhere but down from here although it might linger here if the NASDAQ shows an inclination to spurt for the 3050 area.  Entry at this point in markets would be foolhardy unless world markets clearly break out over their major tops.  Better to take profits and wait for the breakout to buy back rather than get stuck.

 

 

Copper and Oil showed no pulse.  The view remains unchanged from the last blog post.

 

 

 

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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