Home > Uncategorized > MARKET NOTES 08-09-2012: Are the breakouts the real thing?

MARKET NOTES 08-09-2012: Are the breakouts the real thing?

MARKET NOTES 08-09-2012:  Are the breakouts the real thing?

 

Gold [$GOLD]:

 

As noted in the last blog post, every breakout needs to be treated with respect and gold was no exception.  On breaking above $1640, gold moved up to $1660, briefly came back to retest the breakout point and never looked back.  It closed the week at $1735.40.  Where does it go from here?

 

Gold was due for a rally to the $1700 region.  The surprise is in the price & volume momentum, not the price per se.  Gold could stay at elevated levels ranging from $1600 to $1800 for some weeks before it corrects.  We will know if the present breakout is the beginning of another bull-run only after the correction.  A break above $1800 will signify the correction is over.  Until then, the breakout is best treated as the expected corrective pull-back in a long-term bear trend.

Silver [$SILVER]:

 

Silver illustrates the tentative nature of the price better than gold in the previous chart though both the weekly charts are premised on assuming a similar pattern of price correction.

 

Silver could rise to the $38 region as noted in the previous blog-post.  Like gold, the price breakout should be treated with respect but whether the breakout is the resumption of a bull run or just a reactive pull-back in the ongoing correction will only be known by how the correction to the current rally shapes out.  Until proved otherwise, the current correction must be assumed to be in progress.  A price break above $42 will negate this analysis.  It is difficult to see that materializing on the Silver chart.

 

Gold and silver appear to be making coordinated moves and the ensuing price moves could also be similar though Silver’s momentum is much lower than that of gold.

WTI Crude:

 

Crude attempted a pull-back of sorts like the other commodities but didn’t make it past its 200 DMA closing the week at $96.42, just below it.  Note crude has been in an orderly correction since 22nd of August and this correction is likely to continue for a few weeks more.

 

Crude may remain ranged between its 200 DMA on the upper bound and its first floor at $92.50 for the next few weeks.  Any pull-back above its 200 DMA is likely to prove fleeting. Until the price breaks below $92, there is nothing to suggest that the uptrend will not resume albeit along a lower corrected base-line than the one shown in the chart.  Crude price pattern supports the notion of pull-backs in other commodities as opposed to resumption of previous bullish trends.

 

 

US Dollar:

 

The US Dollar tanked Friday to close below its 200 DMA after a long time.  In the process it came close to challenging its floor at 80 on the ICE Index.  As noted in the last blog-post the US $ is in an intermediate correction that started from the level of 84 a few weeks back.

 

In all likelihood, the Dollar may bounce off the floor of 80 for a pull-back to the 82.50/83 region before resuming its downtrend which is by no means over.  However, the long-term bull-trend in the US $ is not likely under threat unless the Dollar falls further and stays below the 80 level.

 

The Dollar is the key to commodities.  A bounce in the Dollar’s value from 80 will moderate commodity prices and also give clues to future moves.  Watch the 80 level like a hawk next week.

Euro$:

 

As indicated in the last blog-post, the Euro was begging for an opportunity to rally past the 1.27 level which came its way last Friday.  It closed the week at an impressive level of 1.28150.

 

Note the rally was very late in coming.  In terms of wave counts, the Euro$ pair is due for a correction which may set in later this week or early next week.  On the upper side Euro has a overhead resistance at 1.30 followed by even more formidable over head at 1.33/1.34.  On the other hand, the Euro has to return to test the 1.27 level as the new floor which it must do early next week.

 

We won’t know if the Euro is in the process of setting up a new bullish trend for a weeks till the shape of the ensuing “correction” in the Euro assumes some shape.  Don’t discount the possibility though.  That said, the Euro will have to do considerable base-building at current levels to build momentum for rallies beyond 1.33.

 

$-INR:

 

The $-INR pair is consolidating nicely above the 54.50 base line since early June.  That consolidation could continue through September as well.  Only a sustained breach of 56.50 to the topside or a decisive fall below 54.50 will alter this view.

 

In the long-term, the base building above 54.50 indicates a rally to the topside sometime in October or thereabouts.  This could come in the middle of October.

NYSE Composite:

 

I haven’t been able to find a good chart that can display the wave counts clearly for the NYSE Composite index.  For the nonce, note that the high of 8,500 in May 2011 marked the beginning of the current correction in the index and that it has completed a full A-B-C leg 7,200 in early June this year.  The question then is this:  Is the rally from 7,200 a reactive pull-back to 8250 or even 8,600 for another leg to the correction or a resumption of the previous bull-run that began in March 2009?

 

Clearly, labeling the “break-out” on NYA or SPX as confirming resumption of the previous bullish run is premature.  For that NYA would first have to clear 8250 and then 8,400.  So I advise investors to be very cautious with proclamations of so-called break-outs.  On the other hand, NYA is clearly indicating that the ongoing correction will probably be a shallow sideways movement.  That has tremendous implications which I will explore in a separate blog-post.  Don’t rush out to buy anything right now!

 

Sensex:

 

As with the NYA, so with the Sensex; none of the headline grabbing news has really translated into trend changing price action on the charts.  Sensex too continues in its current orderly long-term correction that started in November 2010.

 

Note that the Sensex is currently in pull-back mode for the final phase of the correction that could begin pretty soon – the so called PE compression or waterfall phase.  In the current pull back a rally even to 18,500 would not be out of place.  There is room for such a rally both in terms of price and time.  Given enough cues from the US that could well happen.

 

Nevertheless, it will not be a rally to buy into.  I maintain my view that the current pull-back is mere compensation to measure against the fall from 18,500 to 15,800 and the moment the pull-back exhausts itself, the fall in values will resume with a vengeance.  Not bullish on Indian markets barring the said pull-back.

 

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. vanraj
    September 8, 2012 at 2:04 pm

    Mam u were saying that indian markets correction is going to over in very near term so when will it happen? Wht if this rally go beyond 18500 to 19500-21000 on sensex or 5850-6100 on nifty. watch out for year end. It will be there.

  2. vanraj
    September 8, 2012 at 5:12 pm

    mam u were saying that we are near bottom on indian equities. we had already made it at 4770 on nifty. whts u r view on it? wht if we go beyond 18500 on sensex may be 19500-21000 by year end

  3. Kushal
    September 9, 2012 at 6:11 am

    are u a stock broker or an investment banker ?

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