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MARKET BLOG: 24-11-2012: This leg of the correction may be over.
MARKET BLOG: 24-11-2012: This leg of the correction may be over.
Gold:
Gold has been in a counter-trend rally from its low of $1674 marked on 2nd November. The counter-trend rally can go all the way to $1800. However, the more interesting question for long-term investors is the likelihood of gold coming back to $1674 or below the trend line running from the low of $681 in October 2008 to the lows of $1571 in July this year. In other words, will we see a leg down after the current rally to $1800?
Given the length of the drop from $1780 to $1680, and the subsequent counter-trend rally, I think gold may see a failure of the terminating C and the correction that follows this rally to $1800 may not do more than test the long term trend line cited above.
So long-term investors should now be looking to buy gold at dips with stop-loss at $1680 from here to the end of January next year. Not bearish on gold for the long-term any more.
Silver:
Silver made a low $32.16 on 1st November and has been in a counter-trend rally since then, closing the week at $34.04.
While Silver could rally to $35.50 the likelihood of its doing so is not very high. Instead Silver could drift sideways for a while before coming down to test the $31 region.
Silver’s entire move up from the low $27.19 made on 16th May appears reactive and the move down from $35.50 is correction to the rally from the lows of May, which hasn’t been completed yet.
WTI Crude:
Crude closed the week at $87.68. Crude has been in a correction from the high of $113.89 in May 2011. Counting the waves from that point, in my opinion, the low of $84.05 on 7th November marked the end of the correction and fall to $78 may not happen in the near future.
If my wave count is correct, Crude should see a jagged intermediate rally from current levels to the $100-110 region over the next 6 months. The nature & extent of the “jagged” character will tell if crude has resumed its long-term uptrend or if we are in for some correction after June 2013.
A break & consolidation above $89, which is crude’s 50 DMA, will be confirmation of the above wave count. Bulls may keep a stop loss just under $84.
US Dollar:
As expected in the post last week, the $ Index [DXY] turned down from the region of 81.20 and closed the week at 80.2360, well below its 200 DMA and a touch above its 50 DMA.
With the fall below 81, the counter-trend rally in the $ in force from the low of 78.60 on 14th September this year is over. We can now expect the $ to gradually drift lower to retest 78 by the end of December. Expect a consolidation below the 200 DMA [81] before the decent commences in earnest.
However, the $ Index may not traverse all the way to 78 as the long-term charts favor continuation of the bull run in the $.
Euro$:
The Euro$ above 1.28, followed by a close above 1.29 on Friday at 1.29750 could portend considerable volatility in FX markets. We can now expect the Euro to back off a bit and consolidate above the 1.28 mark before moving up towards the 1.31 region.
A failure to penetrate the 1.28 level in the ensuing consolidation effectively means the Euro could rally to 1.31 before the middle of December. Should that happen, all talk about the Euro retesting the 1.20 level in the near future will evaporate. Hence the ensuing consolidation & the following rally are crucial for the long-term trend in the Euro. Exciting times ahead in the FX markets. Note the $ Index will be correcting down during this period and gold moving up! That’s an interesting combination!
$-INR:
As expected in the last post, the $ rose against the INR making it all the way to the first major overhead resistance at INR 55.50. The $’s rise against the INR from the low 51.35 has been fast and furious without a break, probably propelled by short covering by those caught short in the green buck. The $ needs to consolidate below 55.50 for a while before resuming the charge to the previous top.
We may see the $ fall back to retest 54 level and then move sideways between 54 and 55.50 for a couple of weeks to build a base for a further rally. In the long term there is nothing bullish about the INR on the charts.
NASDAQ Composite:
NASDAQ closed the week 2966.85, the point at which the daily bar for the index and its two most important exponential moving averages, the 50 DMA and the 200 DMA intersect. It is fairly rare technical confluence. But then the markets at this point are more technical in nature than responding to any fundamental pull except the pressure of Fed liquidity.
What we have just seen is a correction [yellow arrow] to the rise from the low of 2335 in October 2011 [red arrow] and with the break above both 200 and 50 DMAs that correction has ended.
We can expect a week or so of consolidation above the 200 DMA, just the gap at 2940 before the index resumes its uptrend to retest 3200.
S&P 500:
The SPX chart above is more ambiguous than that for the NASDAQ. However, both will resolve in the same direction. SPX closed the week at 1409, well above its 200 DMA at 1375 and just at its 50 DMA.
SPX direction from here will be known only after the consolidation that follows Friday’s move up 1409. Should SPX succeed in consolidating above it 200 DMA over the next week or so, we can expect the long-term trend up to reassert itself with a vengeance.
As noted in the case of NASDAQ, the balance of probabilities favors resumption of the uptrend and a retest of 1475 or even higher is then a real possibility.
NIFTY:
NIFTY’s story is not that different from the US markets in the short term. NIFTY closed the week at 5626, well above the gap that persists below 5525. It was also above the trend line that runs along the base of the rally from June 2012 low, barring the mini-crash.
Simply put, the NIFTY tried to correct down from the top of 5807 in October but couldn’t make it past the top of the gap at 5525 in the first leg down.
The first leg down may have ended on 19th November and a corrective uptrend resumed which will be jagged and volatile in the normal course. Logically the target for the new uptrend id 5800. The nature & strength of the uptrend will tell us if we will have the much-awaited correction down to 4900 or not.
A new high above 5800 will almost surely call that scenario in question. But it is too early to tell.
Will take a look at Asian Markets mid-week again & revisit this question since most Asian Markets are hugging their lows while the us & EU markets are nearer their highs. That scenario is rather novel for the markets & India’s NIFTY is somewhere between the two.
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: Small counter-trend correction before the slide continues.
MARKET NOTES: Small counter-trend correction before the slide continues.
GOLD:
Gold charts show a rather interesting tug of war between the bulls and the bears. Briefly, A-B-C down on the chart represents the bears’ pull on the metal’s price while W-X-Y [shown as W-X-B on the chart] represents the tug of the bulls counter to the main trend, which has been down since the top of $1920. The big question is how does the tension resolve itself?
Gold has bounced from its 200 DMA at $1660 while respecting the upward sloping trend line from the low of $2526. However, this could simply be a counter-trend correction since the main trend is still down and the wave counts indicate we are probably in a terminating C – at least for the present.
Gold has support at $1620 followed by a very strong base at $1525. On current form, a significant break of $1525 looks highly unlikely. So the real choice is between $1620 or $1525 as the terminating point of this correction.
The markets always surprise but I would assume we are headed for the $1525 region unless further evidence points to the contrary.
SILVER:
Analogous to the Gold chart, we have the Silver chart here. Note the counter-trend pull of the bulls shown here as W-X-B, is much weaker than the A-B-C down.
Silver is almost certainly headed for the $26 region. The support may hold but that may not be the end of the correction.
WTI Crude:
Crude shows far more resilience on the charts than either gold or silver in as much as the counter-trend rallies have been much stronger than the W-X-Y of either of the two metals.
Crude showing some consolidation in the 84-86 range before it retests its support at $78. Crude can surprise and rally before it gets to $78.
Dollar Index [DXY]:
Dollar has surprised in both the strength and duration of its counter-trend rally from 78.60. Dollar has a strong OH resistance at 81.50 and then again at 82 above it.
Dollar index could consolidate above its 200 DMA AT 80.50 for the next few weeks before making a new move either way. The long-term correction in the Dollar from its top of 84.25 is by no means over. So the current rally can persist but is reactive in nature.
EURUSD:
Euro closed the week at 1.2742 and could retest its overhead resistance of 1.28 over the course of next week. However, the main trend is irrevocably down.
First major support lies at 1.26 followed by more substantial support at 1.24. For the next week, expect a drift down to 1.26 after a retest of 1.28 as overhead resistance.
USD-INR:
The Dollar behaved true to form moving up from INR 54 to INR 55 during the week. Chart above shows we are in wave 5 of an up move that appears headed towards the previous top of 57.25.
However, the Dollar has a very strong over-head resistance at INR 55.50 and may well consolidate below it for a week or two before attempting an assault on it. Expect some consolidation before 55.50 is taken out.
NASDAQ COMP:
The current drop in the NASDAQ COMP may find some support in the 2700 region. A much stronger support lies below it at 2500. If we are in a terminating C to the rise from 1131 in September 2002, as I suspect we are for NASDAQ, then a correction down to 2500 by mid-December appears most likely. The first confirmation of that scenario will follow a breach of 2750.
A termination of the current correction above 2500 will be very bullish for the long-term trend in the NASDAQ.
S&P 500 [SPX]:
Analogous to the NASDAQ, SPX has a major support at 1260. SPX could consolidate above 1340 but below its 200 DMA at 1375 before making a fresh move down. SPX is the stronger of the two us equity indices considered here.
CNX NIFTY:
NIFTY closed the week 5574, showing a sequence of lower highs and lower lows from the top at 5751.55 on 4th October. The Sensex, not shown here, has also breached the upward base trend line from the low of 15,749 on 4th June 2012. In fact Sensex is now exactly at the top of the gap created in the index on 14th September and any further fall in the Sensex will take it to 17,715, which is its 200 DMA.
NIFTY’s next support lies at 5525, followed by a more robust support at 5350, which is also close to its 200 DMA. By my wave counts, we are in wave 3 of a terminating C on the NIFTY whose target could be in the 5100 area. It may take a few weeks to get there though.
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: 10-1102012: A pullback that may challenge previous top
MARKET NOTES: 10-1102012: A pullback that may challenge previous top.
Gold:
Gold made a low of $1672.90 last week, a little above its 200 DMA, which was then positioned at $1662, to close the week at just under its 50 DMA at $ 1730.30. The pullback from the recent low of $1672.90 is reactive in nature. Gold could above $1700 but below its 50 DMA for the next week or two before retesting, and possibly breaching its recent low. The long-term correction in gold from its $1920 peak is not yet over.
Silver:
Silver, like gold, bounced back from its 200 DMA closing the week at $32.56 after having made a low of $30.67. The pullback appears reactive in nature and may not top the 50 DMA significantly. Expect a retest of $26 area before a tradable rally ensues.
WTI Crude:
WTI Crude made a low of $84.05 during the week before staging a pullback and closing the week at $86.07. The weekly crude chart above shows crude to be in a terminating C with a target $76. It will take 2 to 3 weeks to get to the target.
US Dollar:
Reproducing last week’s chart for the US Dollar that showed the Dollar Index headed up towards 81.20. DXY closed the week at 81.09 after having made a high of 81.175. The DXY has a very strong overhead resistance at 81.50 following the immediate one at 81.20. I expect the Dollar to turn down from the 81.50 region as the correction from recent top of 84 is not yet complete.
Euro$ [EURUSD]:
This is essentially last week’s chart that predicted Euro to breach the 1.28 mark and head towards 1.26 mark. That is exactly what the Euro did closing the week at 1.27080.
Minor reactive pullbacks could see the Euro$ retest the overhead resistance at 1.2800 over the next week before proceeding towards 1.26. A fall to 1.26 from current levels before a rally can’t be ruled out either. Note 1.26 is just a support.
$-INR:
I expected the $ to turn down from 54 for a retest of the 52.50 region before the $ resumed its rally. However, the $ rallied past its 200 and 50 DMA and closed the week at INR 54.58.
With this rally in place, my preferred wave count is shown in the chart above. Clearly, this wave count indicates a retest of the INR 57 level in due course. Note the $ has a strong resistance overhead at 55.75. Should the $ pierce through this level, the probability of a retest of 57 region becomes most likely.
NASDAQ Comp:
NASDAQ Comp closed the week at 2904.87. The index is due for a pullback from current levels that could hold a few surprises. The big question before traders is to decide if the current fall to 2850 is a wave 4 with wave 5 up yet to come or the next pullback will fall short of the previous top and the fall will continue on to 2700. Short-term wave counts favor a pullback all the way to 3200 although; the index could fall short of the target. Not exactly bullish on the NASDAQ but expect a pullback.
S&P 500:
What applies to NASDAQ Comp, applies to SPX as well. The current fall to a low of 1373 just atop the 200 DMA could turn out to be a wave4 correction with a wave 5 to follow towards the top of 1475. It isn’t certain though. What we can expect is a pullback from current levels and the strength of that pullback will tell us if we have a wave 5 or just wave 2 up following the fall from the recent top of 1475. Either way, a deeper correction is sure to follow.
CNX NIFTY:
NIFTY’s current stance is very similar to that of SPX and NASDAQ although the structure of wave counts is very different. After making a high of 5815, NIFTY has made a low of 5583 [ignoring the mini-crash low of 4888.20 on 5th October]. It is currently on a pullback from there and the target of the pullback could be previous top of 5583 or even higher.
However, a higher high from this rally will not negate a deeper correction to follow sometime in December. Terminating C waves can be very violent and erratic and there is nothing to indicate that we are not in one so far.
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: 03-11-2012: The correction continues
MARKET NOTES: 03-11-2012:
Continuous Commodity Index [CCI Index]:
The weekly chart above shows the price trend of an equal weight index of 17 commodities comprising metals, energy, soft & agri commodities. The index has been in a downtrend from March 2011 and shows no sign of having bottomed out.
The most likely wave count indicates that we may be in the terminal C part of the correction in commodities, which could take the CCI index from its current level of 560 to about 510. That’s about a 10% correction from current levels. Note that on the oscillator charts, the downtrend has just been confirmed. While a strong support can be expected in the 500 region, there is no guarantee that the correction will stop there. Short-term wave counts show that there could be minor pullbacks next week, which will be small counter-trend rallies to correct for over-sold conditions.
Gold Index:
The weekly chart above for gold is really a no-brainer. The metal’s price behavior hasn’t quite followed the CCI Index discussed above but the pattern is analogous. The main difference between gold & other commodities lies in the failure of the 5th sub-wave of the 3rd wave down that led to huge pullback from the $1530 region to $1800. However, the long-term trend has not changed and has reasserted itself again.
Gold closed the week $1677 in a rather sharp 1-day fall. Barring minor pullbacks the downtrend is likely to continue over the next few weeks. A bounce from the 200 DMA in the $1660 region can be expected but is likely to be transient. The wave counts favor a much deeper correction and might involve a retest of $1550.
Silver Index:
Silver effortlessly pierced through it 200 DMA at $31.27 to close the week at $30.89. The metal presents an extremely bearish picture and we can at the very minimum expect a retest of the last low at $26 in the current correction over the next few weeks. Unlike in the case of gold, the prospects of the floor at $26 being held appear slim. A minor pullback may be in the offing early next week. It won’t last very long though.
WTI Crude:
Crude is unlikely to defy the general trend in commodities all by itself. It closed the week at $84.86 just a nick below the trend line running up from January 2009 lows. A retest of $78 is almost certainly on the cards, at which point crude would be a great buy. Crude is one commodity where one could see a failure of the terminal wave 5 down. So be alert for a buying opportunity.
US Dollar [DXY]:
The $ has been in a counter-trend rally from its recent low of 78.62 which may be nearing completion. The DXY Index has a strong overhead resistance at 81.20 level. The Dollar’s correction down from its high of 84 in July of this year is far from over and trend down may reassert itself shortly. In fact the thrust of the $ through its 200 & 50 DMAs in the 80.40 region is almost certainly a head fake that is unlikely to last. Bulls should be very wary of the 81.20 overhead resistance & watch out for a bull trap.
Euro$: [EURUSD]:
The Euro has been in a downtrend since its recent top at 1.31 in September 2012. It made an attempt to rally up which failed at well below 1.31 and is now in a wave 3 fall. First support lies 1.28 followed by more robust support at 1.26. Euro$ closed at 1.2836. Minor pullbacks apart, a breach of 1.28 will accelerate the downtrend. However, expect a small bounce early next week to correct the oversold conditions created last Friday.
USD-INR:
The $ confirmed the onset of a fresh downtrend against the INR by turning down from INR 54.30. The correction in the $ from 57.30 has not quite met the criteria from full-fledged impulse wave down. If it were an impulse wave then we would be in the terminating wave 5 that could retest 51.40 again. However, if the correction down wasn’t an impulse wave as I suspect, then we are in a Wave b down for the rally from 51.40 to 54.20. In that case the correction now underway could terminate much earlier than 51.40.
First support for the $ lies at its 200 DMA at 53.40 followed by a deeper support at 53 and 52.50. It is too early to tell if a retest of 51.40 is on the cards. The trend though is unambiguously down for the Dollar.
IBM:
Since stocks in Indices such as the NASDAQ or S&P 500 don’t move in lock step, the indices can sometimes obscure the underlying price trends by being a mixture of many things. At such times it is instructive to look at market leaders to understand the underlying moves in the broader market. IBM Is one such leader, not only in the tech sector but also as a proxy for real trends in industry, services & manufacturing.
First off, note that the correction in prices has been underway not from September, as the NASDAQ Composite would lead you to believe but from the end of March 2012. This salient fact is obscured on the NASDAQ chart by a head-fake in September peak at 3200. By this reckoning we are either in Wave C of the correction from March or in Wave 3 of a large impulse wave down.
However, note the first 5-part impulse wave down from 210 to 180 for IBM is easily outdistanced by a simple a-b-c corrective wave back to 210 from 180 showing that the underlying trend still favors the upside. Therefore, we can safely assume we are in a Wave C here and not in a large wave III down. In short, market leaders like IBM, Google and Apple are indicating a flattish correction rather than a collapse.
IBM will probably bottom out at 180 if not earlier and could follow through with a higher high. That doesn’t mean the NASDAQ composite will do so. Rather it shows no collapse in markets is imminent as the bears keep preaching. We are into a normal rounded top flattish correction spread over many months. Not a good time for investors but traders can have a ball playing the volatility.
Other technology leaders like Google, Apple, along with stocks like GE show similar price patterns and trend. US Banks are having a ball what with Uncle Ben handing out the lolly. That further points to flattish corrections rather than bearish collapses.
NASDAQ Composite:
Armed with the insight offered by IBM it is easier to decipher the NASDAQ chart. First note that the most obvious next support from current level of 2982, namely the strong support at 2900 followed by the one at 2800, is unlikely to hold. Instead the NASDAQ Comp may bottom closer to 2700 in the current correction. This insight would not be possible until you have seen the IBM chart.
Note also that Friday was a “key reversal day” when the index opened higher than the previous high and closed lower than the previous low. That’s pretty bearish and almost certainly confirms the onset of a fresh leg of the downtrend.
S&P 500 [SPX]:
The above is a daily chart of the S&P 500, not weekly as the others, which is why it looks more bearish and scary. In fact SPX is the stronger of the many US indices bolstered at is by the banks and a large services sector. But correct it will.
First, as we noted there is a triple top of sorts at 1470. Second, while NASDAQ showed a key reversal day on Friday, the close on SPX was above the low of Thursday. Else we were pretty close to a key reversal. Third, using the same wave counts as those on the NASDAQ, we are into Wave 3 of a C down whose target would lie somewhere in the 1270 to 1300 region.
CNX NIFTY:
Fasten seat belts!
First notice lone star on Friday on the charts. It is like to become an “abandoned baby top” on Monday when taken together with the “key reversal day” in the US. That’s pretty bearish and signals the onset of a fresh leg down into the ongoing correction.
First support lies at 5550, [the top of the gap that trapped bears and fuelled this rally] followed by more support in the 5350-5400 region.
The big question though is: do we go all the way to 4800-4900 region? As I mentioned weeks back, the mini-crash on 5th October was ominous in as much as it showed how hollow the market really was. Then, as now, my sense is that the market will try to go there. The only doubt stems from the fact that we are in a correction from November 2011 and there are hardly any bulls left un-slaughtered in the market. So the fuel to take the market down to 4800-4900 has to come from bulls that got caught up in the current rally. That’s sparse pickings. On the other hand, hollow markets can fold up simply by absence of fresh buying and that will certainly be the case over the next few weeks.
A break below 5530 will be the first signal that we are in fact into a terminating C for the entire correction that began in November 2011. However, it will take weeks to unfold.
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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