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MARKET NOTEs: 23-09-2012. The rally continues but avoid chasing it.
MARKET NOTEs: 23-09-2012. The rally continues but avoid chasing it.
Gold [$GOLD]:
Gold closed the week at $1772, a new high in this rally and continued to be at elevated levels as expected. Gold could rally to $1800 or thereabouts where it faces a major overhead resistance that would be difficult to pierce immediately.
The real debate in gold is if the current rally is a resumption of the bull run or is there more correction to come. Wave counts and durations of previous correction favor more correction to come although the pullback so far indicates that the possibility of a break below $1530 is now fairly remote. The run up to $1780/$1800 is overdue for a correction. The shape & size of the ensuing correction will tell us if the correction is over. In my view the probability of another buying opportunity in gold before the end of May next year is fairly high.
Silver [$SILVER]:
There is little change in Silver charts. The metal closed the week at $34.49. Silver could rally to $37.50 but Silver chart is a little less ambiguous than the gold chart in indicating that the present rally is not the resumption of the old bull-run.
The rally in Silver can terminate at any point with little notice. Its 50 DMA is approaching the 200 DMA in the $31 region and Silver could rally on until a golden cross is triggered. That’s happened before & sets up a nice little bull trap if coupled with a ferocious rally to $37.50. The rather early corrections in Silver point to such an outcome. So traders in Silver might get an opportunity to sell above $37 with little risk if things pan out.
Watch this space!
WTI Crude [$WTIC]:
Crude once again proved how treacherous the market in oil can be crashing in 3 days by over 10%. Crude closed the week at $92.89. As tweeted on twitter a quick pull-back above $92 followed by a close over its 50 DMA will indicate that the correction we just saw was normal & to be expected at the end of a fairly sharp bull-run from $77 to $99.
The question really is if the drop to $91 was the end of a correction or the beginning of one. Crude presents a picture where both outcomes are possible. However the probability of a fall below $90 in both cases is fairly low. Only the degree of bullishness changes with the different scenarios.
The pull-back in crude should take it to just under its 200 DMA in the $97 region. Buy the dips in crude.
US Dollar [$USD]:
Reproducing last week’s chart of the US Dollar with updated prices. As expected, the $ turned up from the 78.50 level to close the week at 79.40. While lurch down to 78 level can’t be ruled out, the earlier possibility of a drop to 76 level now looks a bit remote.
Wave counts indicate that the present drop to 78 level could be the end & not the beginning of a correction in the Dollar. If so, the $ should rally fairly quickly above its 200 & 50 DMA now coming together in the 80.50 region. The currency’s price pattern over the next few days should offer a clue if a rally to 80.50 is on the cards. The $ could correct before piercing 80.50.
A convincing close above 81 level would almost confirm that the bull-run in the US currency is resuming. Not bearish on the $ & advocate buying dips.
Euro$ [$FXE]:
The Euro rallied past its 1.30 resistance but never got much beyond 1.31. It closed the week at 1.2979 after hitting a high of 1.3124 earlier in the week.
The Euro could correct down to 1.27 over the following two weeks. While the pull-back in Euro is far from over, the rally up may be jagged and punctuated by sharp corrections. The current correction could however set up a base for the rally up to follow. The probability of a fall below 1.27 can’t be ruled out either.
Euro$ will remain very volatile as it builds a base for a rally in the next two months.
Dollar – INR:
With the drop to just above 53.30 the $ signaled an intermediate correction against Rupee that could last for a few months. Note R53 is the Dollar’s 200 DMA area and the currency is testing the validity of its long term bullish trend against the Rupee. Next week’s trading in Indian markets could be crucial in setting the long term trend.
It is highly likely that the 200 DMA will be taken out during the course of next week after a short pull-back and the $ may look for support in the R52 region. Pity RBI appears to have learned no lessons. It may let the Rupee appreciate against the $ instead up mopping up the $s to build reserves. RBI policy is simply not focused on job creation at home which is a serious flaw in exchange management.
S&P 500 [SPX]:
The rally in S&P 500 is running on an “extension” at least since the top of 1400 at the end of March this year. That is to say, the fall from 1410 to 1270 in my view was impulsive and the subsequent rally is a bounce prior to a rather longish correction in the market. That is not uncommon at the beginning of a correction. That being so, the rally in SPX can terminate pretty abruptly at anytime. Indeed it could have already terminated!
With that caution, note SPX closed last week at 1460 and its next resistance lies at 1500 followed by the previous top at 1580. Can the SPX make a bid for the previous top? Frankly, did not think the rally could stretch this far beyond 1430 though a bounce higher that 1410 from 1270 was possible on the cards. Nothing can be ruled out in these crazy treacherous markets with CBs inflating asset prices. But reason says the rally should terminate fairly soon. However hold the selling till a reversal is confirmed.
NASDAQ Composite [COMPAQ]:
Of all the US equity market indices, NASDAQ Composite is the one that made a long-term bottom in March 2009 and is in a new bullish uptrend that “should have” topped at 3140 in April this year but is running on an extension like its peers. How far could NASDAQ extend? The answer varies but the extension could last well into December on one reckoning. There is nothing on the charts that indicates a reversal of the rally from the low of 2727 in June this year.
For position it is better to take profits based on individual stocks rather than watch the index levels which are on an “extension” due to short-covering by early bears who went short at the logical top. Yes there could be new highs but chasing them is fraught with risk. In any cases protect your longs with tight stop losses. These are very treacherous markets that are defying needed corrections.
Sensex [$BSE]:
Sensex closed the week with a huge rally to end the week at 18,752. There is little on the charts to show that the rally is anywhere near exhaustion despite being overbought. The next resistance for the index lies at 19,100 followed by a more substantial one at 19,800.
As mentioned in the blog last week, this rally could take a shy at the previous top though logically it should stop in the vicinity of 19,800. Protect your longs with tight stops. This rally too is now on an “extension” brought about by “reforms” which were very late in coming. So short-covering apart, the case for fresh buying at these levels doesn’t exist. Stick with your blue chips bought at lows earlier.
Don’t chase the rally. It can terminate with little notice.
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.
Agriculture Commodities: Cotton and Sugar could be making long-term bottoms
Agriculture Commodities: Cotton and Sugar could be making long-term bottoms.
Cotton No2:
Maintain the bullish case for Cotton outlined in my last blog-post on Agricultural commodities. Since then, cotton went into an orderly correction dipping briefly under its 50 DMA at 73 before rallying to close the week well above it 75.39.
A major tradable bull run in the stock will be confirmed once cotton closes convincingly over 78, a level not too far away. Meanwhile the completion of an orderly correction to the rally from 68 level means the breakout may not be far away. Watch this space carefully as it has major implications for India and Pakistan.
Corn [$CORN]:
Corn is correcting and closed last week at 782.50. Corn has major support at 660 that is also close to the 50 DMA area. Unless this support is taken out in the course of the current correction, expect the bull-run to continue in corn.
Long-term, corn has the potential to rally towards the 850 mark by end of this year.
Soybean [$SOYB]:
Like corn, $SOYB is into a short term correction. It has major support at 1650 and room to rally further after the current correction is over in terms of price and time.
The consolidation in price could take time after the huge run up. Expect sideways movement with downward bias for a few months.
Sugar [$SUGAR]:
Sugar presents very interesting possibilities for bulls & has huge implications for sugar stocks in India.
Firstly, sugar continued its correction as indicated in my last post. But it has support 18.75 followed by a rock solid support at 15 that it might not attempt to breach in the current correction. The next few trading sessions should decide one way or the other.
In all likelihood, sugar has made a double bottom at 18.50 and could swiftly reverse from here into a rally to the 23/24 region and beyond. A rally past 21 in the next 4 weeks would very bullish for sugar.
Rough Wheat: [$WHEAT]:
Wheat completed a bearish correction down to 600 level in March this year and then rallied to 925. The rally to 925 region is reactive in nature and unlikely to sustain beyond the short covering.
On a correction setting in, wheat may come down to test the 700 region and the market’s reaction to wheat in this price range should tell us if the correction in wheat prices is over. Not bullish in wheat despite what looks like a breakout.
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.
European Equities indicate no apocalypse awaits Europe in near future
European Equities indicate no apocalypse awaits Europe in near future.
$EURO TOP 100:
European equities, including FTSE, march together although the shape of their rallies and corrections, and the highs and lows vary widely, depending on country specific factors. Currently, one of the most crucial decisions market has to make is being debated in EU markets across the board.
The big question before the markets is this: Did the low formed in June, 2012 signal the end of the correction to the rally in world equity markets that commenced in March, 2009? The answer to this question will determine whether we turn down from current levels for another bout of bloodletting, or continue into a bull market that could take us to new highs till the End of August, 2013. A lot of fortunes ride on this decision. Hence the need to look for clues in every nook & corner of the world. The issue is in play in EU markets, ostensibly the weakest area in terms of growth, deficits and unemployment numbers. What are EU markets saying?
From the chart of the Index of top 100 EU companies, a few things stand out:
- The correction from February 2011 to June 2012 qualifies as a regular bullish correction to the rally in stocks from March 2009 to February 2011. The dates may vary slightly from index to index but are near enough to have the same pattern. [Not possible to show the March 2009 to Feb. 2011 rally on the charts here.]
- The 250 level on the charts marks the inflexion point after which all debate ceases. Should markets rally beyond 250, we are undoubtedly in a bull market that began in March 2009 and will continue well into 2013.
- If the index rallies beyond 230, you have an unambiguous higher high and a higher low in place for the rally from June 2012 that increases the probability of 250 being taken out.
- Markets even at these crucial levels, markets are not over bought and the momentum favors the bulls.
There are a variety of other factors like wave counts and intraday chart patterns that indicate a continuation of the rally that I will not discuss here. One point I can adduce. If you look at markets across the board – US, EU, India – the recent pattern has been to slide down sideways and then rally in a corrective bounce that exceeds the “impulsive sliding fall”. This pattern can resolve either way with time – the slides can prolong & bounces diminish, or vice versa. It is a fascinating way to study the real auction process in markets played out as a structured game with real money. So far bounces have exceeded the initial fall & appear to lengthening instead of shortening as they would in a normal correction.
In short, there is now a real possibility that the markets may rally straight through to middle of 2013 where we were actually expecting a correction that was baked into the market structure. There is no confirmation yet, and it will not be proper to act on the outcome laid out here as yet. One must wait for confirmation. This piece is more of an alert to draw attention to the crucial point being worked out by the markets; nothing more, nothing less. On the chart, a rally past 250 will be a good confirmation that the bull markets from March 2009 continues through to 2013.
German DAX [$DAX]:
DAX is far ahead of the first chart of Euro Top 100, in confirming June 2012 as the end of the correction for the run up from March 2009 to May 2011. [Note the difference in dates for tops.] DAX has already rallied past 7200 and pierced through the downward sloping trend line from May 2011 to March 2012.
The final act of confirmation will come upon a rally past 7600. Note DAX is currently at 7412. DAX is slightly overbought but has momentum on its side. As the strongest economy in the EU, it is not surprising that DAX leads the way.
While there is guarantee that all other EU markets will follow the DAX pattern, there will be rallies in those markets as well should the DAX break above 7600.
French CAC40 [$CAC]:
The French market is structurally much weaker than the DAX as should be obvious from the two charts above. But the critical chart points and structure are analogous. The critical question is: Was the low in June 2012 the end of the correction to the rally from March 2009 to February 2011?
CAC is poised just below the critical 3585 level. Note DAX has already negotiated well above that analogous point on its charts. Will the CAC follow likewise?
Note CAC too has pierced through the downward sloping trend line from February 2011 to March 2012. It too has a series of higher lows and needs another higher high to confirm an uptrend which a rally past 3600 will confer. Therefore, it is not unlikely that CAC will rally on past 3600 to test 4150.
UK FTSE 100 [$FTSE]:
FTSE is true blue-blood British giving nothing away while being in lock-step with the European cousin. Looks like it has more professional traders making markets than in EU. That said, let us take a look.
FTSE hasn’t broken the downward sloping trend line like DAX and CAC. But it is at the exact same analogous point as CAC is. Moreover DAX has already rallied past the analogue of the point at 6000 that FTSE is testing. See how professional the Brits are? They give nothing away unlike the “stupid” European cousins whose “game plan” is far easier to decipher.
The English can only be deceptive till 6000 is taken out. After that, the chart reads identical to the DAX or the CAC so I will not belabor the point any further. Watch the 6000 level.
Spanish IBEX [$IBEX]:
Not surprisingly, Spain’s IBEX is much weaker than DAX, CAC or FTSE. It even has a lower low in early August that’s nominally below the low at June 2012.
Nevertheless, the attempt to rally past 9500 is obvious and may happen depending on how markets shape out in Germany, France and UK.
IBEX is NOT indicating an end to the ongoing correction like the stronger EU cousins. But that doesn’t mean it can’t participate in the likely Europe wide rally with a corrective bounce when it happens. Watch 9000 like a hawk.
Italian FTSEMI:
The Italian MIB chart is more or less analogous to the Spanish chart complete with a lower low in July than the one in June. So like the Spanish chart its not signaling any bottom as yet.
Neither has it taken out the 17,000 nor tested the downward sloping line from February 2011. Instead MIB is simply into a bear rally challenging the 17,000 level which it could take out in sympathy with other market.
All said and done, there is an appreciable probability that the EU markets could rally on moving sideways but with an upward bias for some more time. And this trend could consolidate into a tradable uptrend as participation increases. There is no confirmation yet that this will happen. In the absence of confirmation, the current down trend should be assumed to be in place.
The first confirmation will come when DAX breaks past 7600. So that is a market that should be on everybody’s watch list. But until that happens don’t trade on this scenario.
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.
The Roll of Drum Sticks
The Roll of Drum Sticks
South of Vindhayas, you cannot get a helping of sambhar without the ubiquitous drumstick. For most Tamilians and Keralites, Moringa Oleifera as the botanists call the vegetable, it is what defines sambhar. Very few meals get done without the sumptuous vegetable making a presence in some form or the other. The vegetable’s presence in most meals, in a largely vegetarian country, is no accident. Nutritionists confirm what your great-great-grand moms knew by sheer experimentation; that the humble drumstick is laden with the good stuff as no other food.
A well researched wiki entry [http://en.wikipedia.org/wiki/Moringa_oleifera] along with references to the original papers, informs us of the nutritional value of drumsticks as compared with other common but more expensive foods:
| Nutrients | Other Food | Quantity | In Moringa Leaves |
| Vitamin A | Carrot | 1.80 mg | 6.80 mg |
| Calcium | Milk | 120 mg | 440 mg |
| Potassium | Banana | 88 mg | 259 mg |
| Protein | Yoghurt | 3.1 g | 6.7 g |
| Vitamin C | Orange | 30 mg | 220 mg |
Even when compared with the best in in the class, Moringa leaves score higher in key nutrients by an order of magnitude. Mind we are comparing just the leaves of the drumstick tree with other foods. The fruit scores just as high if not better. The advantage leaves have over the fruit is that they can be dried, powdered, and packed with a shelf life that exceeds three years without any diminution of nutritional value. Yes it’s a great opportunity, as big as Gaur gum, for some enterprising entrepreneur or MNC out there.
So why does this nutritious, nearly ubiquitous vegetable not figure in the diet of Indians in Northern India?
Matter of fact it does. The inspiration for this piece came from our maid who is visiting us after retiring to her home in a village in Chhattisgarh. She was with us for nearly 20 years. Her people are tribals. It still takes two days to reach her village from the nearest railway station. In the forests where she lives, the drumstick leaves are collected all round the year except in monsoon. The tender ones are cooked and eaten like spinach. The others are dried, powdered and used to flavor rice water [Kanji]. The leaves give the Kanji a hot, pungent taste besides their nutritional value. As she tells me, the leaves are the only vegetable they can get in the dry summer and they are eaten with relish. Must admit the Kanji she made for me, with a dash of ginger and mint, was superb.
Moringa is an easy to grow plant that is pruned regularly to keep its height within arm’s reach. It is best grown from cuttings though seeds too can be used. The tree grows to a height of 8 to 10 feet if not pruned before monsoons. It bears fruit within 2 years of planting and has a fruit bearing life of about 10 years. The best feature of the Moringa tree is that it grows in semi-arid conditions and doesn’t need anything beyond a few showers every monsoon to survive. Therefore it can be grown in the semi-arid regions of Gujarat and southern Rajasthan on any fallow land or even planted for forestry. It requires minimal care once to gets to shrub size. It is excellent feed for cattle and so may require protection when planted but none after it attains a height of 6 feet or more.
Why has the tree not found favor with officialdom given the ease of cultivation, its excellent nutritional value, shelf-life of it leaves as food, and its use as vegetable?
I think it is a combination of the usual lack of familiarity, lethargy and inability to market successfully to a skeptical public.
The World Bank thinks very highly of Moringa as the solution to malnutrition in sub-tropics and semi-arid regions. It has an active research program to study the tree and the ways to popularize its cultivation. So all that I have said here is not out of the blue. For an enterprising firm in the food business, the whole value chain from supply of saplings/cuttings to farmers, gathering of fruit and leaves, processing and marketing as spinach or ingredient for spicy soup is a huge opportunity. The fact that the tree can be grown cost-effectively in districts where nothing but inedible shrubs grow is a huge cost advantage. What it requires is education of potential farmers and marketing to get going.
Very little gets done in India without the politicians with government babus in tow. The astute may have noted that I mentioned Rajasthan and Gujarat as two potential states that could benefit immensely from Moringa cultivation. There are others of course but I know only the semi-arid regions of Rajasthan & Gujarat first hand. There are huge public benefits to Moringa cultivation in tackling nutritional needs of the poor in a manner they can access the benefits without market intervention. It may be of interest to the governments of Gujarat & Rajasthan to actively promote Moringa cultivation through schemes for afforestation on wastelands under their care and through other promotional schemes including arranging for cuttings on the scale required from the Southern States or other sub-tropical countries like Philippines.
The Central Arid Zone Research Institute, Jodhpur is a centrally sponsored research body doing some pretty nifty work in arid zone development. It can hardly be in ignorance of the potential for Moringa cultivation in the semi-arid zones that support large wild shrubs. So hopefully, the two state governments can be prodded enough to ask CAZRI to do a quick project in consultation with the World Bank to see if Moringa cultivation is feasible on a viable scale in Southern Rajasthan and North Western Gujarat. I have little doubt they scientists at CAZRI will not only be interested but excited at the prospect. Once the scientific validity of the proposition is established, the two governments should go all out promote the tree, its vegetables and leaves to the farmers and people of Gujarat & Rajasthan. 2014 is not far, there is time enough, and there are plenty of rural votes in such development schemes.
For us in the Konkan, the humble drumstick is a must carry vegetable to Mumbai. On most Monday mornings you will find the sticks sticking out of bags of people catching the ferry from Mandwa to Gateway. The leaves and flowers though aren’t eaten in Konkan. They can, and should be, turned into soup powder.
My maid bemoans the fact that much of the stuff that they traditionally eat in their forests is giving way to fancy “city vegetables” which are less nutritious and more expensive. May be CAZRI should take a look at Chhattisgarh and its tribal areas to see what other treasures they have discovered unknown to the rest of the world.
Or may be I am too sanguine that anybody in authority will take note of my plea in this letter. In which case we might have to wait till some enterprising Chinese entrepreneur decides to retail La Mu or Lat Mok hot spicy soups as Chinese foods. The words mean “Spicy wood”. Then our local patriots will rail against Chinese cultural invasion, bemoan the fact that we knew of drumsticks centuries before the Chinese, and that Chinese are simply taking unfair advantage in selling their soups to us.
All because we never paid any attention to our advasis in the forests and their survival skills honed over centuries in wilderness.
MARKET NOTES 15-09-2012: Markets are still largely sideways
MARKET NOTES 15-09-2012: Markets are still largely sideways.
Gold [$GOLD]:
As mentioned in the last blog post, Gold was expected to rally to test the $1800 region and stay at elevated levels for some time. The metal did not disappoint, closing the week at $1769.60.
Gold has a crucial overhead resistance at $1800. A breach of this will almost certainly signify that the correction in gold is over and the long-term uptrend may resume in the metal. The resistance may not be taken out at first attempt. A failure to breach $1800 will mean some more sideways movement before the impasse is resolved. Until there is confirmation of reversal the current long-term down-trend must be assumed to be in force. Watch $1800 region like a hawk.
Silver [$SILVER]:
Silver appears to be making a bid for the $37.50 overhead resistance. It may not go all the way but has time to get there on the charts. No indication on the charts that the rally is exhausted.
Silver charts indicate there is no serious threat to the long-term downtrend in Silver which sort of supports the long-term bearish stance in Gold. A breach of $37.50 on the upside will obviously negate this view. Avoid initiating fresh sales. Even if $37.50 is not breached the metal could move sideways for quite some time.
Crude Oil [$WTIC]:
Crude has shown the treacherous nature of this market like no other asset class. After moving below its 200 DMA and staying there for a few days, crude reared up its head to close the week well above the critical 200 DMA. Crude was last reported at $99.
Crude has a crucial overhead resistance at $100 that it is currently testing followed by a more substantial one at $105. I don’t think the $105 level will be taken out any time soon. Crude needs to consolidate around its 200 DMA at $96 to $105 for few weeks before moving up again. That said, I remain bullish in crude. Buy the dips is a good strategy here.
US Dollar [$USD]:
As mentioned in the last blog post, the mighty $ has been in a correction but was expected to find support at or near its 200 DMA 80.78. However, the $ breached that support following the surprising [unlimited] QE3 and closed the week at 78.84. The sharp rallies in asset prices, especially commodities, are merely a reciprocal of the value of the $. No, that’s not factor in my analysis.
$ has a support at 78 followed by a much more solid floor at 76. The fall in the value of the $ appears to be overdone even though the correction is not over. Expect a bounce from 78 levels. A very sharp rally from 78 can’t be ruled out. There is a scenarios which says the $ correction is substantially over and a resumption of the long-term uptrend could begin over the next few weeks. That has implications for all asset prices.
Euro$ [$FXE]:
Euro$ rocketed through its resistance 1.31 to close the week at 1.31240. The Euro has a more substantial resistance at $1.33 and could attempt to take that out next 2/3 days. However the more likely scenario after that is a sideways movement for few weeks to consolidate recent gains.
Nothing on the charts to indicate the uptrend from 1.2050 level is exhausted. In fact the break above 1.31 or a shy at 1.33 will confirm that the Euro has another leg to the upside after a correction. The correction itself could be fairly sharp and could easily test the new floor at 1.27.
$-INR:
Have completely redone the wave counts in $-INR pair and in some measure have returned to the “original” wave count that led me to “predict” the spurt in the $ from 44 to 57.
$ fell against INR, closing the week at 54.30. The $ has a floor at 54 followed by a deeper floor at 52. The odds favor a pull back from 54 levels to back in the 54-56 range for a further period of consolidation. A breach of 54 will test 52 but the probability at this stage is small.
S&P 500 [SPX]:
As indicated in the last blog post [based on $NYA but equivalent level on the $SPX IS 1420] a break above 1420 has completely changed the nature of the correction in the US markets. $SPX itself closed the week at 1465.77.
The next significant level on $SPX is 1530, 1500 being just a round number. Unfortunately, at this point there is no credible way to predict where this uptrend will end except to say it is basically reactive even though the reactive bounce so far has been higher than the initial fall. That changes with time to normal. The US markets will correct, perhaps by middle of November. Until then use parabolic stops to protect your long positions. Don’t chase the rally.
SENSEX:
Was expecting a run up to 18500 level and the Sensex closed the week at 18,464.
The Sensex could vault over 18,500 Monday before going into a sideways correction for a few weeks. The next major resistance is at 19,160 followed by 19,800. The extension to this rally has opened up intriguing possibilities that need to be explored as the next few weeks pan out. The possibility of a pull back to all the way to 21,100 is all too real depending on how the market pans out over the next two weeks.
Even if the rally materializes, and I am not sure it will as yet, it will be a very treacherous run up. Protects longs with parabolic stops on auto. On the other hand, a retest of 15,500 isn’t ruled out either after the current rally exhausts itself. We will for sure only as the markets plays out its moves. As always buy into blue chips that are currently at lows for bad news flow. The news cycle turns but blue chips stay blue chips.
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.
sonaliranade 