Home > Uncategorized > MARKET NOTES: The markets may plunge over the next few weeks

MARKET NOTES: The markets may plunge over the next few weeks

MARKET NOTES:  The markets may plunge over the next few weeks

Gold:  Gold closed the week at $1642, having bounced back from a low of $1626 on Friday, a 2nd higher high than the low of $1610 made 4th April.  This has given rise to the possibility of Gold having bottomed out in the near term.  Investors will recall a similar formation on the Sensex last week which proved deceptive as the Sensex crashed through the strong floor at 17,000.  Likewise, the gold floor at $1610 may prove elusive.  Gold should be seen in Wave C of a correction down to $1550 minimum.  Failures in Wave C are rare.  So I would go with the view that Gold continues to be bearish and that we will see lower lows before the end of July.

Silver:  Silver clambered atop $30 on Friday after having made a low of $29.75.  Like Gold, Silver too is in Wave C of a correction with a minimum target of $26.  Wave C failures are exceedingly rare.  Expect to see Silver down to $26 by mid-June if not earlier, this being the minimum target on the downside.

$-Index:  The pattern forming on the $ chart is strikingly similar to the one on the Gold chart.  Despite the $ downtrend that started from the level of 82 in January this year, there is a marked hesitation to take out the 78.75 mark.  78 is a rather significant floor for the $ and may not be taken out in the next 1 or 2 attempts.  But it is hard to see the $ not testing 76.5 before it eventually turns up.  The next logical target for the $ remains 78 followed by the more significant floor at 76.5.

Euro-$:  Euro closed the week at 1.30820.  Its target for the downtrend was 1.30.  While the Euro could head for 1.30 during the ensuing week, it is time to close out all short Euro-$ positions in my opinion.  The larger correction of the Euro spanning from the top of 1.60 to the low of 1.20 is drawing to a close some time in the near future.  Expect a sharp turnaround in the Euro in the next few weeks.  Not bearish on the Euro despite the negative news flow from Spain and Italy.  However, investors should watch for an actual reversal from 1.30 before taking positions.  This is more a caution for bears to lighten up on Euro shorts.

$-INR:  The $ touched a high of 53.92 before closing at 53.47 following RBI intervention.  A host of curbs in forward trading in the $ remain in force and the RBI will be tempted to add to them.  This is penny wise, pound foolish of the Central Bank.  It should let the Rupee find its own value that it can defend without frittering away its reserves.  Remember, RBI intervention is no more than a subsidy for dumb traders.  That said, the $ may consolidate a bit before taking out its previous top at 54.3.  There is no reason why it should stop there though.  We may have to wait well into June before the $ establishes new trading ranges.  Would hesitate put a price on the $ because of RBI intervention.  Don’t be short $ against the INR – bus!

S&P 500:  The index closed at 1369 on Friday.  The immediate target of the down move appears to be a test of 1350.  I suspect the floor at 1350 may not hold during the ensuing or the next week & will gave way to lower levels.  That is not apparent from S&P 500 charts per se.  For greater clarity, look at the NYSE Composite chart.  The latter index started its down trend at 8327 on 19th March, making it all the way down to 7835 on 10th April.  From that point it tried to rally, and made it to a high of 8211 on May 1st before breaking down.  The breakdown is impulsive, has sharp momentum, and is headed to test of the floor in the 7800 area that also happens to be the 200 DMA.  As usual, the 200 DMA may not be taken out at the first 2 or 3 attempts but the pattern points to it giving way eventually.  The corresponding point on the S&P 500 index is 1350.  That is sure to be tested and may even hold for a while.  The Facebook IPO represents an event that may see considerable effort by bulls to defend 1350.  Their compulsion to defend 1350 offers a good trading opportunity!

Sensex:  After much hesitation at the 17,000 level, the Sensex broke through its 200 DMA to close at 16,831 on Friday.  Technically, that opens the way to an ultimate retest of the 15,000 area again.  Hard to see why the markets should stop short of that.  There are multiple resistances on the way to 15,000 the most important being the long-term trend line that is likely to be tested at 16,500 level.  This is followed by another resistance at 16,000.  Be that as it may, having broken 17,000 the Sensex is likely to test the 15,000 area thoroughly before it turns up – if it turns up from there!  The Sensex’s response to the up-sloping trend line at 16,500 will offer some clues to where the Sensex might head eventually.  Prospects 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. May 6, 2012 at 3:08 pm

    Hi, may I ask a free advise. For over years I have been following the policy of buying stocks and selling when it goes 15% higher than investment cost. It worked and got good gains. Nonetheless, I am stuck with few stocks that went southwards during the past few years, mostly because the companies merged those with new IPO stocks, to avoid the benefit of its gains go to the retail buyers. ( you know which).

    I tried to average the buy price by acquiring more,but it helped only to add my my overall loss in terms of money. I am now at a loss of almost 40% of my investment cost and it is considerable amount, though most of these were bought from the gains I had on other stocks.
    I think my strategy went wrong. Now I have decided to forget these and wait, for years if need be, as I don’t like to sell those on heavy loss. Meanwhile trying my hand on some good stocks that gave me good profits.
    Is my decision right. What you suggest?

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