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MARKET NOTES: 27-10-2012 The much anticipated correction is here!
MARKET NOTES: 27-10-2012 The much anticipated correction is here!
Gold [$GOLD]:
As expected last week, gold continued to correct from its recent top at $1795 to end the week at $1710.30. While this correction is far from over, a minor pullback in prices is now due after which the metal could retest its support around its 200 DMA currently positioned at $1661.
The metal’s future trajectory will be determined by the market’s reaction to the metal around its 200 DMA. Should the support hold, a robust rally in the metal can be expected which may see the metal retest its previous top in the next few months.
Gold’s test of its support around its 200 DMA will take weeks, not days. The market’s reaction to the metal in the $1660 area will be critical. A failure to hold support at $1660 will imply a fall to $1525.
Silver:
Like gold, Silver too is correcting from its recent top at $35 and is now approaching its 200 DMA area in the $31 region. It closed last week at $32.06.
The metal is due for a counter-trend pullback from the $31 area and could head towards $35. However, the metal’s pullback from its recent low of $26 has been weak & unimpressive. A pullback beyond $35-37 region looks highly unlikely which puts the metal in a long term downtrend.
WTI Crude:
Crude broke through my stop at $88 negating my last wave count which was bullish. It closed the week at $86.28.
Crude has strong support between $84 and $86 after which the possibility of a retest of $78 level exists. I could argue that the break below my stop of $88 by a small margin was something to be overlooked but will not do so because the breach invalidated my wave count.
Nevertheless, it is pertinent to point out that on long-term daily charts, the rising trend line from $35 in February 2009 through $78 in June 2012 is intact and my bullish prognosis on crude continues to hold. I will not be surprised to see crude rebound from the $86 region. However, absent a revalidated wave count, the probability of a retest of $78 cannot be ruled out.
US Dollar:
As expected the $ rallied in a counter-trend making a high of 80.350 against our expected high of 80.50. The counter-trend rally is stronger than one expected and could continue in the ensuing week to test the 200 DMA currently at 80.54.
However, the correction in the $ from its recent top at 84.25 is far from over. So the $ is likely to be capped around its 200 DMA. Look to sell the $ at rally highs in the 80.50+ region.
Euro$:
Repeating last week commentary as it continues to hold!
As expected, the Euro$ continued to correct from its recent top at 1.3175 and closed the week at 1.3021. The Euro did attempt a counter-trend rally from the low of 1.28 for the previous top but turned down well before that level.
Barring small counter-trend rallies, the Euro is now set for a retest of 1.28 level in the next few weeks. If that level is breached decisively, the currency would unleash a destructive C wave its ongoing correction from the top of 1.5000 whose target could be 1.2000.
So watch the 1.2800 level like a hawk. Keep a stop loss just above 1.32 for shorts. A rally above that level will negate this analysis.
Euro$ should continue to move side to down over the ensuing week. It closed Friday at 1.2939 after making a low of 1.2881.
$-INR:
As expected the $ turned down from INR 54, but contrary to expectations, has decided to consolidate above its 200 DMA at 53.15.
The $ could continue its consolidation above its 200 DMA for the ensuing week capped at the top by 54. Rather difficult to see how a $ rally can build up from here without at least an attempt to retest 52.50. Neutral on the $ until it either retests 52.50 or shows a robust base build up just above its 200 DMA.
NASDAQ COMP:
With its violation of the rally’s base trend line, followed by penetration of the 200 DMA on Friday, NASDAQ Comp has flagged a reversal of the rally from the low of 2335 in October 2011. The question now is the extent & duration of the correction. Further has the rally from March 2009 low of 1244 been also terminated and reversed?
First support for Nasdaq Comp lies at 2950 followed by a more robust support at 2850. Until 2850 is decisively violated, it may be premature to assume that the long-term rally from March 2009 lows is over. In fact there could be a small counter-trend rally from 2950 before further declines are seen.
The correction in the NASDAQ will take a while to unfold and could continue March/April 2013. Further confirmation would come on a violation of 2950 after a small bounce from current levels.
S&P 500:
S&P 500 has formed what looks like a triple top at 1474 and violation of the “neck line” at 1428 has confirmed a near term reversal in the index. SPX has also violated the rally’s base trend line from the low 1266 in April 2012.
First support for the Index lies at 1400 followed by a more robust support at 1360. One could see a modest bounce from first support but it’s unlikely to last long. The index’s 200 DMA is at 1370. Future trajectory of this correction will depend on the market’s reaction to the prices in the 1360/70 area.
Much like the NASDAQ, SPX too could be in a running correction to the long-term rally from the lows of March 2009. SPX looks stronger than NASDAQ on current form.
CNX NIFTY:
Reproducing last week’s chart to show how NIFTY bucked the downtrend by consolidating above 5540 even as it kept in step with the correction in US markets. Clearly, NIFTY intends to chart its own course although it may keep in step with US markets as far as direction goes while keeping the distance under its own steam.
The NIFTY could see a bounce from 5640 levels over the ensuing week. The extent & robustness of the bounce will provide clues to NIFTY’s future trajectory. That said, 5815 should be treated as a near-term top and the current fall a correction from that level unless proved otherwise.
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.
Is the serious crack in the NASDAQ Composite index enough to reverse this rally?
MARKET NOTES: 20-10-2012 Is the serious crack in the NASDAQ Composite index enough to reverse this rally?
Gold:
As expected Gold continued it correction from the recent top at $1795 and closed the week at $1721, slightly above its 50 DMA. The ongoing correction is far from over in terms of time and price although minor pullbacks from the trend will always be there.
From the price action so far, barring counter-trend pullbacks, the metal is headed towards a retest of the 200 DMA which is currently in the $1650 to $1660 area. The metal’s reaction to that area will tell us if it intends to rally towards its previous top at $1920 or go into longer and deeper correction. The balance of probability points to a possible rally to the previous top if the floor at its 200 DMA holds. Watch that area for clues.
Silver:
Like Gold, Silver too continued it correction from the recent top and closed the week at $32.05, below its 50 DMA which is currently positioned at $32.50. Its 200 DMA lies at $31.20 and may provide support in the ensuing week.
Silver’s wave structure is unambiguously bearish for the long term and is distinctly different from that gold despite superficial similarities. Upon taking support at our around its 200 DMA in the $31 region, the metal could rally again to retest $35. But a rally of the kind in gold that tests the previous top $50 is not on the cards in the near future.
Upon a pullback from the $31 area, look for opportunities to sell in the $35 area. But before let us see if the metal does take support at $31!
WTI Crude:
As expected crude continued its correction from its recent top at $100.50 and closed the week at $90.05 well above the baseline of the uptrend showed in the chart above.
Essentially, the correction in crude for the rally from $77.50 to $100.50 is over both in terms of time and price. Crude should therefore rally upwards from its current level of $90.05. Its first overhead resistance lies at $93.85 which is its 50 DMA followed by its 200 DMA $95.72. It may not make it to $95 in the next week or two but will reach for that area.
First support lies at $87 which is where your stop should be. A breach of $87 will completely negate this analysis and open the way for a retest of the recent floor at $78. However the probability of such a scenario looks remote given the wave counts.
US Dollar:
The US $ is correcting in a text book fashion from its recent top 84.25. In this correction it has already made a low of 78.6 on 14th September and is currently in a counter trend rally that will be capped by its 50 and 200 DMAs, both of which are overhead in the 80.50. The $ closed the last week 79.6880.
While a rally to the 80.50 is likely in the ensuing week, the longer time frame correction from 84.25 is not over and will likely have a second leg that will retest 78.50 area. Look to sell the $ on a rally to 80.50 area with a stop loss just above its 200 DMA.
Euro$:
As expected, the Euro$ continued to correct from its recent top at 1.3175 and closed the week at 1.3021. The Euro did attempt a counter-trend rally from the low of 1.28 for the previous top but turned down well before that level.
Barring small counter-trend rallies, the Euro is now set for a retest of 1.28 level in the next few weeks. If that level is breached decisively, the currency would unleash a destructive C wave its ongoing correction from the top of 1.5000 whose target could be 1.2000.
So watch the 1.2800 level like a hawk. Keep a stop loss just above 1.32 for shorts. A rally above that level will negate this analysis.
$-INR:
The $ pulled off a surprisingly sharp rally from 51.50 to end the week at INR 53.99.
The $ has surprised both to the downside when it breached 52.50 and now to the upside by taking out its 200 DMA currently at 53.40. Apparently, trading discipline is not one of the virtues of $-INR market!
The $ is unlikely to go higher than INR 54.50 which is its 50 DMA overhead in the current rally. In fact it should reverse well before that to [a] retest its floor at INR 53.40 which its 200 DMA and on a breach of the same, the congestion zone just above 52.50. There is time & room for such a retest & confirmation of the floor for the $ in the 52 region before a meaningful rally develops.
NASDAQ Composite:
Essentially, I have reproduced last week’s chart firstly because it requires no change except to mark the next support and secondly to show the technical damage inflicted on the index by earnings disappointments by Intel, IBM, and Google. Note the index rallied from 3040 as expected to 3096 which is also its 50 DMA before going into an unexpected fall breaching the base trend line of the rally to close the week at 3005.62. Is the party over?
There is no doubt that the breach of 3040 again has thrown up a very significant crack in the markets. The breach of the base trend-line underlines the weakness. However, the index could take support at the 2950 level, which is a significant support, and also the 200 DMA, and rally decisively from there to reclaim the 3100 area. But unless it does do that, and does it quickly, we could see a complete breakdown in the index.
As mentioned last week the markets is skating on thin ice of an extension that can reverse on a dime.
S&P 500:
The technical position of S&P 500 [SPX] is much better than that of the NASDAQ Comp. The index too corrected with the NASDAQ and is currently positioned at 1433 testing its support at 50 DMA and the base trend line of the current rally. A further fall below 1420 would certainly call the entire rally into question. But the disaster hasn’t happened yet. It only threatens at this point.
Structurally, If SPX reverses course above 1420 and quickly reclaims the 1475 area in the next 3 or 4 trading sessions the technical damage would repaired. Furthermore, SPX’s correction so far is at a place where one would expect to have one. So it’s not a surprise as in the case of NASDAQ.
That said, SPX like NASDAQ is also on an extension & can turn on a dime. Place stops at 1415 and get out if the level is breached.
Nifty:
The NIFTY continued its correction in an expected and orderly manner closing the week at 5684.25. The correction is likely to continue until the end of October and has a first target at 5530 followed by a deeper target at 5450. As long as NIFTY remains above 5400, the scope for a rally after this correction to 5850 and beyond remains intact.
A breach of 5450 would a free fall. So it is time to be cautious on Indian markets as well if the US markets show signs of taking out further supports. However, apart for the breach on 5th October, there is nothing on NFTY charts to indicate imminent danger.
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 perils of conflating Modi with Gujarat
The perils of conflating Modi with Gujarat
Modi acolytes quickly countered that. Their Modified refrain was to say that Modi had been successful in maintaining a very high growth and moving it further towards faster growth, albeit by a small percentage. That self-serving argument collapsed when we showed that Gujarat’s twin next door had a GSDP not 25 per cent but 2.50 times higher than that of Gujarat AND still clocked a higher growth rate in GSDP in the last five years without the benefit of a demigod in the chief minister’s chair. What accounts for this conflation of Modi’s performance with Gujarat’s long-term trends in development except poopganda and hype?
We recently read an excellent article by Arvind Panagariya in The Times of India [ Images ] wherein the Columbia professor made a point about separating the politics about Gujarat from its economic performance. There was a period of time, just after the 2002 riots, when Modi was afforded a certain amount of leeway, by the media and others, in hyping up Gujarat’s economic performance as a way of rebuilding Gujarat’s shattered morale and self-confidence.
For instance, Gujarat used the 2001-03 severe drought years to form the base year for appraising its agriculture growth. And to top up the folly, it failed to take the inflation out of the nominal agricultural production to show fabulous growth rates achieved by Modi. It took a lot of public, on record, berating from the Planning Commission before the numbers were rectified and scaled down. Furthermore, the Narmada Dam was close to 20 years in building and actually came on line with irrigation canals et al in 2002. This gave a huge, but one-time, step up to agriculture in the state. Need proof? Take look at thistable.
Removing the drought and bounce years from the data series for Gujarat, we take a look at growth in agriculture over seven years, from 2004-05 to 2010-11, for Gujarat and comparable states comprising Andhra Pradesh, Karnataka [ Images ], Maharashtra [ Images ], Tamil Nadu and West Bengal [ Images]. The all-India compounded annual growth rate [CAGR] was 3.31. The highest rate recorded was by Karnataka (10.89 pc), followed by Tamil Nadu (8.64 pc), Andhra Pradesh (7.81 pc), Gujarat (5.58 pc), Maharashtra (2.43 pc) and, lastly, West Bengal (2.15 pc). This is the recorded growth over a seven-year period, not a flash in the pan; and the comparator states are large and populous ones. Where is Modi’s chamatkar?
Gujarat has done as well as it always did before Modi, and will continue to do so after him. That then is our problem with buying into the conflation of Modi with Gujarat and vice versa. Note, Maharashtra’s colossal failure in agriculture despite Shard Pawar being the Union agriculture minister. Maharashtra failed to add a single acre to land under irrigation in the last 20 years and the results reflect that abysmal failure.
But let’s get back to Gujarat and the latest twist to its story in manufacturing where a few dramatic gestures in land allocation to large industrial houses have made Modi the darling of corporate honchos. Take a look at the table again. Here are the CAGR numbers: Maharashtra (14.37 pc), Gujarat (13.47 pc), Andhra (10.90 pc), West Bengal (8.80 pc), Tamil Nadu (8.49 pc), Karnataka (7.76 pc). Again, these are CAGRs over 10 years and hence unbiased by random fluctuations. The all-India growth rate in manufacturing over the period was an abysmal 7.86 pc, reflecting India’s archaic labour laws and other regulations.
To round off the growth debate in Gujarat under Modi, take a look at the overall GSDP growth number over the last seven years. This data is available on the Planning Commission website. And here is the most salient feature of this set of numbers. All, repeat all, the larger states, except West Bengal, did well over the last seven years [CAGR 2004 to 2011], there being little to choose between them. Let the numbers speak for themselves: Maharashtra 10.69 pc, Tamil Nadu 10.34 pc, Gujarat 10.06 pc, Karnataka 9.14 pc, Andhra 9.09 pc and West Bengal 7.21 pc. All the major states clocked between nine and 10 pc. Where is the miracle in Gujarat except in the hype?
Gujarat’s relative lag on social indicators of development relative to its peer comparator states is often explained away as being not too bad relative to others, especially in the context of Modi’s miracle on growth. Well, there is no growth miracle in Gujarat; rather it is business as usual. And to be honest, Gujarat does no better, and certainly no worse, than other comparator states in such things as poverty reduction, literacy, child mortality, and nutrition. The data relating to these parameters is available on the Planning Commission website. The literacy rate in all the large comparator states range from 67.66 pc [Andhra] to 82.91 pc [Maharashtra], with Gujarat at 79.73 pc. Panagariya makes a great point in drawing attention to the fact that Gujarat has done well to catch up with its peer states in literacy. However, note that this trend has been in progress ever since 1981 in terms of data cited by him. It’s not something unique to Modi.
Now take the total reduction in poverty between 2004-05 and 2009-10. Maharashtra reduced total poverty by 13.7 pc, followed by Tamil Nadu 12.3 pc, Karnataka 9.7 pc, Gujarat 8.6 pc, Andhra 8.5 pc, while the all-India reduction in poverty was 7.4 pc. Gujarat was above average but well behind the leaders and fell short in relation to its growth numbers.
So whether you take hard economic growth numbers or social indicators, two facts stand out. First, as we showed earlier, Gujarat’s growth rate has always been high, much before Modi came on the scene. Modi has at best maintained the growth but certainly not accelerated it. And in the last few years many other larger states have beaten Gujarat in the race. Maharashtra in particular, with a GSDP 2.5 times that of Gujarat, has not only clocked a higher all-round growth rate [except in agriculture] but also is right at the top in social indicators of development like poverty reduction or literacy.
But the second aspect is more worrisome. Not only has the Gujarat story been hyped out of all proportion, but also the hype is being used to promote a fascist personality cult around Modi, making him out to be some kind of a super performer in economic development. This proposition is without basis. As the data above shows, Gujarat’s performance is good but there are others who have done far better without any demi-gods at the helm.
Of the other BJP-ruled states, with the exception of Karnataka, none of them figure anywhere in the top performance rankings either in terms of growth or social development. So Modi may well be the tallest leader in the BJP. But being tall in the BJP means nothing when-run-of-the-mill politicians in next door Maharashtra outperform you despite serious policy failures like zero, yes zero, investment in irrigation over the last 20 years.
The fact is that by conflating Modi with Gujarat the larger lesson in development — economic reforms — is being sidelined and lost. As we showed in our earlier articles, it was the economic reforms of 1991 that almost doubled the growth rate of GSDP of all states, big and small. It is reforms that lead to higher productivity and higher growth and not this or that personality cult. The short cut to nirvana through Modi or any other demi-god simply doesn’t exist.
As we have seen, Modi himself is not an economic reformer. His philosophy of development is centred around a command-and-control authoritarian model that rams through projects and programmes by sheer administrative fiat that is simply not scalable to an all-India level given the country’s diversity and cultural mores.
Rather than promote dubious personality cults, Gujarat’s growth story, with that of Maharashtra, Tamil Nadu and Karnataka, is better used to promote economic reforms that will do us much greater good. The lag in reforms is causing us to miss great opportunities to pull our people out of poverty through faster growth.
Sonali Ranade is a trader in the international markets and Shaelja Sharma is an HR professional
Sonali Ranade and Shaelja Sharma
MARKET NOTEs: There may be another leg up to the rally in US equities
MARKET NOTEs: There may be another leg up to the rally in US equities.
We are in a very mature bull market that has been running up from March 2008 for nearly four years. As such, one may expect a fairly deep and serious correction to set in at any time. However, market structure, wave counts and timing of certain moves enable us to spot a crack in the markets well before it happens. So this exercise is mainly to see if any such cracks that presage the onset of a correction are obvious.
On the other hand, markets usually go parabolic before a correction and a significant percentage of the gains come from such euphoric moves. So the possibility of a terminal parabolic move in the markets is difficult to ignore. With these caveats in mind, read on. Temper greed with plenty of caution!
Gold [$GOLD]:
As expected in my last post, Gold continued to correct from its recent top of $1777.50 and closed the week at $1753.50, a touch above the indicated support at $1750.
The correction in gold looks set to continue. Its first support from current levels lies at $1740 followed by a more robust support at $1700. Gold’s 50 DMA lies in the $1700 region and its 200 DMA at $1650. As indicated before, Gold could continue to consolidate broadly between $1800 and $1700 levels from here to end of December before making a decisive move one way or the other.
Silver [$SILVER]:
Silver too continued to correct from its recent top at $35.50 to close the week at $33.95. Silver’s first support from current levels lies at $32.50.
Silver is likely to continue to consolidate above $32.50 but below $36 for a few weeks more before making a final attempt at a rally to $37.50 or higher. Silver’s rally from the recent bottom of $26 is in the nature of a corrective rally whose ultimate target is probably in the $37.50 region. In terms of time this rally could reach its target March next year.
That said, there is nothing bullish about the metal in the long term so far. U would need to rethink if it breaks well above $38. Until then I remain bearish on the metal.
Crude Oil [$WTIC]:
WTI crude continued to correct from its recent top of $110 and closed the week at $91.86. Its first support from current level lies at $87 followed by deeper support at $78.
Crude’s price action so far is constructive and consistent with the notion of a bullish cup & handle correction to its rise from $32 to $115. On such reckoning, the correction could last till the second week of November and end in the vicinity of $80.
However, over the long term, there is nothing bearish in the crude’s chart despite the fact the correction turned out to be much deeper than expected. I would not be surprised if crude turns around much before $80 although it is bound towards that area on the charts.
Reuters CRB Index [$CRB]:
Reuters CRB Index is a goof proxy for commodities in general. The Index has been correcting from its top of 370 and is now positioned at 306.55 having made a recent low of 268, which probably was the bottom. The current correction from 320 levels will possibly test the index’s 200 DMA in the 290 region.
From current level’s the index’s first major support is at 290 region followed by a deeper support at 268. Needless to say, a successful retest of the 290 region [i.e. a rebound from there] would be very bullish for the commodity markets and signal an end to the current correction.
Dollar [$USD]:
Dollar has been correcting down from its recent high of 84.25 and closed last week at 79.74 after its recent low at 78.62. The corrective bounce could test the 200 DMA currently placed at 80.50. However, the more likely course is a retest of the recent bottom at 78.65 over the next few weeks, possibly a month or two.
That said, the current correction hasn’t dented the long term bullish picture. On a successful retest of 78.65 towards the end of the current year, expect the long term trend up to reassert itself.
A fall below $78 is possible but hard to see given the correction so far.
EURUSD [$FXE]:
The Euro continued to correct from its recent top at 1.3160 and closed the week at 1.2950 after having made a low 1.2800. The corrective bounce is unlikely to last for long and we can expect the Euro to retest, and likely breach the 1.2800 level soon, perhaps next week itself.
The Euro has multiple supports at every handle down to 1.2000 which is also its logical target. But it will take months getting there. Sell rallies and cover at dips. There isn’t anything remotely bullish about the currency although it is at battered valuations.
Dollar-INR:
The Dollar bounced back from its recent low of 51.50 in INRs and closed the week at 52.80. The Dollar could continue to trade between its recent floor at 51.50 and its 200 DMA currently poised at 53. A retest of 51.50 over the next 3 to 4 weeks is highly likely. A successful retest of the 51.50 would be pretty bullish for the Dollar.
On a successful retest of 51.50, expect the $ to test the 200 DMA and thereafter trade within the triangle shown above.
NASDAQ Composite [$COMPQ]:
NASDAQ Comp continued its correction from the recent top of 3201 and closed the week at 3044.11. Considering we are now in a fairly mature bull markets as far as the US equities are concerned, the major issue is if the market has topped out. The Index’s 200 DMA and its first support lie at 2970. The first serious breach of support will happen if the index breaks this level. Place tight stops under it.
That said, NASDAQ is in a very strong uptrend and has both time and wave counts to support an extension of the current uptrend until the first quarter of next year. Its current target appears to be in the 3400 to 3500. That may or may not happen but the index has room to get there as long as key supports aren’t breached. Remember we are the very last phase of the bull market which itself is on an extension!
S&P500 [$SPX]:
The picture on the S&P 500 is not very different from that of NASDAQ Comp. We would love to know how far this bull move that began in March 2009 from a level of 667 can run. The index closed last week at 1428.59 having made a high of 1474.51 in September.
SPX’s correction from the top of 1474 has been orderly & constructive so far. The first critical support lies at 1420. As long as this level is not breached, there is little technical damage to the bull run that remains in play. So place tight stops under that point.
On the other hand, should market rebound from current levels , and make a new high atop 1475, we can be fairly certain that the bull run is all set for the previous top of 1580 or perhaps a wee bit higher. It all depends on [a] when and where the current correction halts, and [b] how quickly a new high is made after this correction is over.
NIFTY [$CNXN]:
NIFTY continued its correction from the recent top of 5812, and closed the week at 5676.05. The correction is likely to continue till the end of October with minor pullbacks on the way unless it ends earlier. Nifty’s first major support lies at 5540, just above the gap and a more substantial one at 5400.
Technically speaking, the NIFTY should ideally be heading in the 4900 to 5100 area in the last leg of the correction that began from 6335 in November, 2010. On the other hand, the market’s wave-counts from the rally up from 28th October, 2008 level of 2526 is not very different from that of the US markets albeit the structure is not as over stretched as that of SPX or NASDAQ. So could the rally in Nifty also “extend” after a running correction till the end of the month triggered by the famous intra-day crash to 4900?
The balance of probability favors an extension. Again, this is very treacherous territory in a very mature bull markets. So enjoy the ride but keep tight stop loses. Focus on blue chips which are still at attractive valuations on the buy side.
Note the Indian market now has many moving parts, not all of which are in sync. So the general direction shown by the index may be right but specific sectors have their own trajectory and timing.
NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.
MARKET NOTES: 06-10-2012: The Indian market may have signaled the end of a correction & a major bull run
MARKET NOTES: 06-10-2012: The Indian market may have signaled the end of a correction & a major bull run
Gold [$GOLD]:
Gold has had a nice run up from $1526 region to $1800 region over the last 4 months. It closed the week at $1780 continuing a sideways movement at elevated levels. The metal is likely to continue its sideways movement, but below $1800 for a week or two more before correcting for the substantial rise from $1525 to $1800.
Gold has established a firm upward trend and the possibility of a retest of $1525 is now remote. The next correction could at best see the metal in the $1700 region.
Gold bulls should wait for a correction to the $1700 region to reenter the metal. Gold now becomes a buy at dips.
Silver [$SILVER]:
Silver has been in a reactive pullback since it hit a low of $26 on 28th June this year. It closed last week at $34.5720. Silver, unlike gold, hasn’t been able to establish a firm uptrend as yet.
Silver too may continue its sideways movement with an upward bias for many weeks to come. Things will get interesting in Silver once it breaks atop $37.50. Until then it is safe to assume that Silver’s main trend is down.
Silver remains a sell at rallies until it breaks atop $37.50 or corrects substantially.
Crude Oil $WTIC]:
WTI crude oil closed the week at $89.88. Crude has been correcting since it hit a high of $100.50 on 14th September, and the correction should continue for a few weeks more. Crude’s first support lies at $87.50 followed by a deeper support at $83.
Oil could test $87.50 before bouncing back for a bit. However the movement is likely to be one of consolidation above $87.50 but below $94. Long-term I am not bearish on crude. It remains a buy at fall to support.
I would put my stop loss in crude at $82. This fall is a good place to accumulate crude.
US Dollar [$USD]:
Had expected the $ to find support and head towards 81 to reclaim its 200 DMA. Instead the $ turned down from its first resistance at 80.50 and is probably going to retest its floor at 78.50.
Unless the floor of 78.50 is decisively taken out the present wave count, which is bullish, holds and the $ is likely to move up again after a retest of 78.50 which could happen early next week. $ remains a buy at dips with stop loss just below 78.
Euro$ [$FXE]:
Euro$ turned down after hitting high of 1.3175 and touched a low of 1.28 which was its first support. It has since pulled back and closed the week at 1.3030.
Euro$ could pullback all the way to 1.3175. However, I do not expect it to go higher than that in terms of my wave counts. After reversing from 1.3175 or below, the Euro$ is likely to seek substantially lower levels. Sell rallies in the Euro$ with a stop just above 1.3200.
$-INR:
The $ had a long-term support at 52 which too was violated, albeit marginally, last week. The $ has also breached its 200 DMA. So for all practical purposes, unless the $ swings around dramatically from 52 levels, the long rally in the $ against INR is over.
The next major support for the $ lies at INR 49. RBI reluctance to mop up the $ at a certain level is a policy decision. It should have intervened at INR 52 level IMO. RBI and GoI have to realize that job creation in the software services sector is, and will remain, the key driver of all growth in the economy. As such, RBI’s exchange rate policy must focus on attracting jobs into the sector before all else. Without jobs, the strengthening of the Rupee is meaningless. Exports have been falling month after month. Software services sector is losing jobs. Mere portfolio investment inflows via FIIs should not be used as a pretext to allow an appreciation in the Rupee. Portfolio inflows are a financing device for Current Account Deficit, not income like trade flows are. RBI must not repeat its strategic blunder of the past.
That said, the $ having violated 52, should head towards a disastrous 49 level barring a swift reversal. Don’t rule out a corrective bounce in the $ next week. INR 52 is a good place to bounce from.
NASDAQ Composite [$COMPAQ]:
NASDAQ Comp closed the week at 3136, above its immediate support at 3130. That’s pretty bullish.
NASDAQ Comp could continue a sideways correction early next week to retest the 3100 region. On a successful retest, the index could move up substantially to new highs.
NASDAQ Comp remains the strongest of the US indices. So it should be tracked carefully for any sign of weakness or internal cracks. So far there are none of note.
S&P 500 [SPX]:
SPX close last week 1460.93 just short of its previous high 1474. Like NASDAQ, SPX too has demonstrated considerable strength where one would expect a correction. That indicates the index could go higher and may have another leg up.
SPX could correct early next week in a sideways move before moving up. There is little downside to the index unless 1440 is threatened, which per present wave count looks unlikely.
A reminder though. This bull move has traversed a long way over nearly 4 years. So we are pretty close to the top. So keep very tight stop losses at preset levels. That said, SPX has demonstrated strength in this correction, not weakness.
S&P CNX Nifty [$CNXN]:
Nifty’s first support lies at 5630 and then again just above the gap at 5525. Whatever be the reason for the crash on last Friday, Nifty has to correct and test its support at the above two levels failing which it will drift down to 5450. This is not to say Nifty is bearish. It simply means the market will try to drift there. The rest depends on who was trapped in the gap between 5450 and 5530.
That said, the crash marks a very important date which can be construed to be the end of the major correction to the market’s steep bull run from 918 in 2003 to 6340 in January 2008. That’s too important a date to miss and its significance should not be lost on the market.
Should the next three weeks prove the above reading to be correct, we have started a major new bull run on the Nifty that will last many years. How will we know if this interpretation of the charts is correct? Watch this space for confirmation before the end of November.
So a short-term correction or sideways move may be on the cards till end November. But don’t count on major dips. Wait for confirmation of a bull run on broad markets. Meanwhile buy the blue chips on your buy list but at your prices.
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.
Department of Statistics, Govt. of Gujarat
sonaliranade 