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MARKET NOTES: NIFTY has cleverly anticipated the correction in world markets.

February 23, 2013 Leave a comment

MARKET NOTES:  NIFTY has cleverly anticipated the correction in world markets. 

 

 

 

Currency markets are still the driver of other asset prices.  The mighty Dollar may have just finished a bullish correction to its first rally from 73 in May 2011 to 84.25 in July 2012 and may be headed towards the 84 region again.  The US economy is among the strongest after its discovery of shale reserves & fracking.  Real wages have fallen low enough to win back jobs from abroad.  The financial system is in better shape & the Fed has avoided confusing the markets with a consistent policy, which says it will replace liquidity lost by de-levering in the off-the-books private sector credit markets with its own balance sheet expansion.  The US economy has recovered & the rally in Dollar over the last 12 months reflects that reality.  Yes financial markets need to correct because as the $ regains value, asset prices must adjust relative valuations.  So in a sense the correction that we now see is more about a pause to adjust than a resumption of a long-term bear market.

 

 

Shallow, sideways corrections, [at least to begin with] don’t mean there aren’t over stretched greedy pigs in the markets.  The froth in the Russell 2000 space says there is plenty of that critter awaiting slaughter.  Neither are the hyped up metal & other commodity markets free from weak hands that bought the wrong thing at the wrong time at a wrong price.  So the shake out in some sectors will be brutal, and since cash is fungible, trouble in a few sectors spills over to other sectors as margin calls need to be met.  So don’t assume “fundamentals” will save the day for traders.

 

Interest rates in the US, and world markets show every indication of inching up.  This has huge one-time implication for commodity and equity markets that have a positive cost of carry.  The story of funds rotating out of bonds into equity is over hyped but cost of carry is pretty much real.

 

 

 

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.

 

 

US Dollar [DXY]:

230213 DXY

 

 

 

 

 

 

The most important development in financial markets during the week was the breakout of the USD above its overhead resistance at 81.50.  The currency index closed the week at 81.5850.  The event resolved the wave count by confirming that the correction in the value of the Dollar from it top of 84.25 was complete and the long-term bullish trend in the currency has resumed.

 

DXY could pull back in the ensuing week to test its new floor at 81.  However, over the longer term, the Index is headed towards the 83 area and could go even higher to test its previous top at 84.25.

 

The value of the Dollar could unsettle the entire commodity world and perhaps even the equity indices.

 

EURUSD:

 

230213 EURUSD

 

 

 

 

 

EURUSD broke fell through its 50 DMA to close the week at 1.31880.  With that the currency signaled an intermediate correction that will eventually test its 200 DMA, which is currently in the region of 1.28.

 

The Euro is poised exactly at the current rally’s base trend line & could pull back a bit before taking out the support.  But barring such pull backs, it appears to be headed for the next logical target at 1.2950.

 

 

 

USDJPY:

 

230213 USDJPY

 

 

 

 

 

 

The Dollar paused just under its overhead resistance at 95 for correction closing the week at 93.38.  There is no logical reason why the rally in the USD in the Yen market should halt under 95 level.

 

 

With DXY breaking atop 81.50, the USD should test the overhead down sloping trend line of the USD against the Yen, which currently is in the region of 102.75.  Won’t happen next week but the rally of the USD in Yen markets is far from over.  Yen finds support at 90.

 

 

USDINR:

 

230213 USDINR

 

 

 

 

 

The Dollar closed the week at INR 54.26 just above its 50 DMA but just short of its 200 DMA.

 

The INR market appears mighty confused about the value of the Dollar.  Its been hovering around its 200 & 50 DMA pair since early October, alternatively going above & below them while the two averages move closer.  May be the Lords in RBI are confused themselves.

 

There is a curious negative correlation between the DXY and the INR that I can’t detail here.  But it’s close & has held since the beginning of 2012.  On the basis of this, I will go back to my previous wave count – one that says Dollar will test 57.25 in the not too distant future.  Watch for a break above INR 54.50.

 

 

10 year UST yield:

 

230213 10 Year USTs

 

 

 

 

 

The movement in yields has been deceptively small but the trend should be obvious from the weekly charts above.  10 year USTs yield stood at 1.97.

 

 

10-year notes peaked in price at 135.90 in June 2012 and have been drifting down since as yields have crept up. They closed the week at 131.91.  In the process, they fell through an important support at 132.

 

 

The next logical support area for the Notes is now 130.50 followed by 128.50.  That corresponds to yields creeping up to 2.20%

 

 

Gold:

 

230213 Gold

 

 

 

 

 

Gold was an unmitigated disaster as expected and closed the week at 1572.80 after making a low of 1554.30.  The next logical target remains $1525, which could be tested over the next few weeks.  Gold has time to get there & beyond.

 

 

The intriguing question is will $1525 hold?  Markets always surprise and my sense is that that gold may test 1425 before it launches into a bear rally.  So watch out for surprise moves!

 

 

 

 

 

Silver:

 

230213 Silver

 

 

 

 

 

Silver closed the week $28.46, a nick below its first support at 28.50.  It could pull back a bit from here but the next logical target remains $26.

 

 

The tricky issue really is will $26 hold for Silver?  Like Gold, my sense is that the market would surprise to the downside and we may well see Silver testing $20 before a bear rally unleashes its correction.

 

A lot of Gold & Silver is in weak retail hands owing to the well-publicized benefits of investing in gold as mother-of-all hedges.  Without a huge price surprise & panic, how would you shake out the loonies?

 

 

HG Copper:

 

 

230213 HG Copper

 

 

 

 

Copper closed the week at 3.5330, well below its 50 DMA and cracking its 200 DMA in the tumble from the recent top of 3.80.

 

 

The price action in Copper is a grim reminder of the surprise & ruthlessness with which a C wave decimates price.  Copper’s next logical target is 3.40 followed by a deeper target at 3.10.

 

In the case of Copper 3.10 could hold.  Keep in mind that bulls will be squeezed with margin calls across all markets simultaneously before this correction is over.

 

 

WTI Crude:

 

230213 WTI Crude

 

 

 

 

 

Crude closed the week at $93.10 just a notch under its 50 DMA but well above its 200 DMA, which is in the $90 area.

 

 

Crude has important support at $90 followed by a deeper at $84.  Crude may well correct in line with all commodities.  However, the charts don’t show the sort of structural weakness that metal like Gold & Silver reveal.  My sense is that a any deep correction in Crude prices could be transitory.

 

$90 is almost certainly on the cards.  We may well see $84 before the correction is over.

 

 

Shanghai Composite:

 

230213 Shanghai

 

 

 

 

 

Shanghai closed the week at 2314.16 a wee bit above its 50 and 200 DMAs.  That should be no source of comfort however.

 

Shanghai could take temporary support at its 200 DMA, which is in the 2238 area.  However, the safe & logical thing to assume here is that the correction now underway, baring pullbacks will test 100% of the rise from 1948 to 2445.

 

 

Two reasons:  Firstly, I think the rally we just saw was a bear rally that set up a bullish flag.  Secondly, Chinese markets tend to rigorously test extremes multiple times.  There is time enough on the charts for a retest in the 1950 area.

 

NIKKEI 225:

 

230213 Nikkei 225

 

 

 

 

 

Nikkei closed the week at 11,385.94 after making a double top at 11,506. 

 

First support for Nikkei lies at 10,947 followed by a deeper support at 10,200.  Nikkei’s 200 DMA lies way down at 9200.  So while Nikkei is not bearish in the long-term, expect a fairly sharp, deep correction.

 

The steep run up in Nikkei shows 9200 could well be tested albeit briefly knocking out traders but leaving investors merely discomfited.

 

 

 

 

 

S&P 500 [SPX]:

 

230213 SPX

 

 

 

 

 

SPX closed the week at 1515.60. It has a day to try & regain 1535 but my sense is that it will miss the mark by a whisker.  Even a new high from here is largely symbolic.

 

 

The intriguing question is the shape and depth of the ensuing correction.  Safe to say markets will be sideways for a while and keep hopes of a new high alive.

 

However, SPX universe is not a monolith and there could be considerable churn in terms of sectors.  The techs for instance are not fully in sync with SPX movements.

 

Traders should look for confirmation to play the short side.  Investors should take out all the garbage in the midcap space if not already done.  The Russell 2000 space has the maximum froth suggestive of distribution.

 

 

 

 

NSE NIFTY:

 

230213 NIFTY

 

 

 

NIFTY closed the week at 5850, which has been an important support for the market since December 2012.

 

A pullback from 5850 to the 50 DMA at 5970 over the next week can’t be ruled out especially if SPX makes a credible pullback to 1535.  Baring such reactive pullback, NIFTY appears headed for the 5700 area indicated earlier as the target for this correction.

 

Within the NIFTY, there are considerable divergences.  Stocks in the FMCG sector like ITC [8% OF NIFTY] have barely begun their corrections while some like SAIL or Hindalco in the metals sector are pretty much close to their long-term correction bottoms.

 

Investors should use the correction to buy in looking to individual stocks & not the indices, which are more sentiment indicators rather than that of value.  Not saying the indices are not relevant; only that they are at times misleading because of major divergences within the index.

 

Avoid the midcap space & stick to value among front line blue chips.  There are great bargains in that space.  I like Steel, Cement, Telecoms, select large PSU banks and engineering giants like BHEL.

 

 

 

 

 

 

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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MARKET NOTES: An correction may have begun or is about to begin in World Markets

February 16, 2013 Leave a comment

MARKET NOTES:  A correction may have begun or is about to begin in World Markets

 

Currencies have been driving markets as central banks wield monetary policy to stimulate their economies.  Much of the focus has been on Japan but the Japanese Central Bank was late to the party.  The US started the cycle of currency debasement taking the $ from 92 in 2007 to 73 in 2011.  ECB was next, tanking the Euro from $1.58 in 2007 to $1.20 in 2011.  In contrast, the Yen actually appreciated against the $ from 2007 to 2011, with $ moving down from 125 Yen in 2007 to 76 Yen in 2011.  So the Japanese depreciation of the Yen that is touted as the latest round in the currency war hasn’t made up even 50% of the debasement that was imposed on the $.  But then when did the financial press ever reflect reality?  If it did, we traders would be out of business!

 

The debasement of $ is over in my view.  Both the Euro & the Yen need to correct but their direction over the long term is also up.  In the case of Euro & Yen, corrections in currencies may also test equity & bond valuations.  And that is basically what the ensuing correction in world markets is all about – a reality check on all asset prices as the world settles down to a new regime of currency valuations.

 

India always seeks the muddle path.  In the period 2007 to 2011, when the world was debasing currencies, RBI had little clue on what its response should be.  Absent a cogent policy. INR traced a muddled path.  Believe it or not, while others were actively debasing currencies, RBI allowed the $ to first appreciate from INR 40 in 2007 to INR 51 in 2009 [the correct response] and the reversed letting the $ depreciate from INR 51 to INR 44 in 2011 – tanking both the economy & our exports.

 

Waking up suddenly to looming BoP crisis in 2011, it allowed the $ to go from INR 44 to INR 57.  Net net, from 2007 to 2012, we have debased the Rupee from 1$=40 to 1$=57.  Currently we are at 1$=54 INR.  And export growth is 0, while CAD is 4% of GDP, prolly higher!

 

So the next correction is less about cash flows to corporates and more about relative risk asset valuations as currencies settle down to a new trading regime.  Read the technical in that light.

 

 

Gold:

 

160213 Gold

 

 

Gold closed the week at $1609.50 decisively violating the support at $1620.  Gold could return to test 1620 as an overhead resistance before proceeding lower towards the $1525 region.

Gold’s 50 DMA is poised to pierce the 200 DMA from the top, which would signal a death cross.  Barring reactive pullbacks, I see nothing bullish about the metal until it signals a bottom has been formed.

 

Silver:

 

160213 Silver

Silver closed the week at $29.84, well below both its 50 and 200 DMAs.

Gold has a floor at $28.50 which is the metal’s next logical target followed by $26.  Silver could collapse much like gold as it nears $28.

 

HG Copper:

 

160213 HG Copper

Copper closed the week at $3.734, well ABOVE its 50 and 200 DMAs.

The metal appears to be testing the 3.70 as a support before moving higher.  Its next logical target remains 3.85.

Following any collapse in metal prices Copper may not go below 3.70 area.

 

WTI Crude:

 

160213 WTI Crude

WTI crude closed the week at $95.86, well above both the 50 and 200 DMAs.

Crude appears to be testing the validity of its break atop $93 and the test may be nearing completion.  Provided $93 holds true as the new support, expect crude to head the $100 level.

Note crude may retest $93 several times as other risk assets prices test supports over the next few weeks.

 

US Dollar [DXY]:

160213 DXY

DXY closed the week at 80.576, above its 50 DMA but below its 200 DMA, which currently stands at 81.

DXY appears to have completed its correction from the top of 84.25 at point C shown on the charts above and put up bullish flag topping at 80.71.  It could move higher from here to nick the 200 DMA at 81 before correcting.  A move beyond 81.50 will signal the resumption of a bull run in DXY.

 

 

EURUSD:

160213 EURUSD

EURUSD closed the week at 1.3362, just above its 50 DMA, which currently stands at 1.3290.

The Euro has completed the first leg of its bull run from 1.20 to 1.37.  It is now into a Wave 2 correction the downside target of which could be 1.300 followed by 1.265.  It will take a while to get there with many pullbacks in between.  The next logical target is 1.31.

 

 

USDJPY:

160213 USDJPY

The $ closed at Yen 93.48.  By my reckoning of the wave counts, the rally in the $ vs Yen is over for now, having topped out 94.42.

Expect the $ to correct in a normal bullish correction to the run  up from 75 to 94.  The eventual target of the correction could be in the region of 84 Yen.

 

 

USDINR:

160213 USDINR

$ closed the week at INR 54.31 just below its 50 DMA.  The 200 DMA is currently placed at 54.70 and the $ could well test that level before turning down towards its logical target of 51.50.

Hard to read if anybody in RBI is really in charge of the desk that monitors this pair.  India has been loosing exports & yet INR appreciates against the $.  Strange RBI policies!

 

 

Yield on 10-Year USTs:

160213 10 Year USTs

Yields on all US Treasuries have been creeping up.  The rate on 10-year notes closed the week at 2.01% after having made a high of 2.05% during the week.

As the weekly chart of yields shows, the rates have now decisively moved into a new trading range that spans from 2.0% to 2.30%.  That may not seems much but could cause huge changes in incremental fund flows among asset classes.

 

 

German DAX:

 

160213 DAX

DAX closed the week at 7593.51, some 240 points or 3% below its recent top.  Has the DAX topped out?

There is a small chance that DAX could reach for the all time high of 8095.  However, a count down from DAX’s top of July 2007 shows it has run out of time.  [DAX topped earlier than SPX in 2007.]  DAX prolly has made its top already and is now headed 4 a correction that may be rather shallow.  First stop from here is 7450.

 

 

Nikkei 225:

160213 NIKKEI 225

Nikkei 225 closed the week at 11,174 after having made a top of 11,506.  By my wave counts, the current rally, more a bear rally really, is over and the index could correct down to 10.200.

Note, the ensuing correction is more in the nature of a normal correction to run up from 6840 to 11,500 spanning a little over 4 years and the fall comes at the fag end of the correction.

It is not a bear market.  The correction may be both short and shallow.

 

 

S&P 500 [SPX]:

160213 SPX

SPX closed the week at 1517.1.  My D-day for end of this rally is 22nd of February.  That’s next Friday.  Not that it is possible to be that precise.  Just that we are pretty much done in terms of the current rally though a higher high is not ruled out.

My sense is that we will probably see a short shallow correction before the rally resumes.  I would be surprised if 1420 were taken out in the ensuing correction.  But you never know.  So treat 1420 as first stop.

 

 

Shanghai Composite:

160213 Shanghsi Comp

Just to complete the picture on the corrections due in world markets take a look at the Shanghai Composite.  Big overhead resistance is looming overhead at 2500.  Such major overhead resistances are rarely taken out at first attempt.  So a modest correction is due and it could well turn out to be 30% to 50% of the gain from 1950 to 2500.

The correction times well with world markets.

 

 

NSE NIFTY:

160213 NIFTY

NIFTY closed the week 5887.40.  That was well below both its 50 and 200 DMAs.  With the violation of 5950, the next logical target for NIFTY now becomes 5700.  Note the 200 DMA is now placed at 5500 and it is highly unlikely that NIFTY will breach that level in the current correction.

To me the ongoing correction is a buying opportunity for long-term investors especially in cyclical blue chips.  NIFTY correction too could be timed to end with world markets and could be short and shallow from here on.

 

 

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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Talak. Talak. Talak!

February 10, 2013 Leave a comment

Modi Togadiya

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MARKET NOTES: Is the NIFTY being set up for a crash by February end?

February 9, 2013 Leave a comment

MARKET NOTES:  Is the NIFTY being set up for a crash by February end?

 

 

Markets keep making new highs amid all the talk of over-valuations, credit bubbles & currency debasement.  We are in very mature bull markets, which can turn on a dime.  There is never any need for real investors to call a top or a bottom.  Only fools & traders indulge themselves in such stupid exercises.  For the rest, it is easy to see we pretty much within 5% of a near term top in US markets.  Taking out the garbage from the portfolio to buy into a correction is the prudent strategy.

 

NIFTY will not be immune to a sharp correction in the US and world markets.  And while Asian markets like Shanghai & Nikkei are in strong uptrends, they are close to near term overhead resistances.  The tricky part therefore is to determine if any reasoned estimate of the likely correction can be made.

 

Having cycled through all the 50 NIFTY charts, my impression is that the ensuing correction will be very shallow and short & not a market crash.

 

 

It is not my intention to go into the construction of bull & bear traps.  But when you are expecting a shallow correction you need both to turn a profit.  And the obvious violation of 5950 so close to a top makes me very vary of both.

 

 

Investors should use the rally to clear the garbage and create a cash cushion.  Correction in the mid-cap space could be very brutal.

 

US Dollar [DXY]:

 

090213 DXY

 

 

 

 

 

Dollar closed the week at 80.3160 testing the upper end of its trading range defined by the down sloping trend line from the top of 84.2450 back in July 2012.

 

Is the correction over?  I think there is another leg down to the correction, perhaps the last, and it could be violent.  One could see a final bottom in the Dollar for this correction in the third week of March around 79.

 

EURUSD:

 

090213 EURUSD

 

 

 

 

 

Euro pair closed the week at 1.3363 well below the floor at 1.34.  While the correction was expected [see previous blog] a violation of the floor at 1.34 indicates that this correction could last for a while.  Barring pullbacks, the first target for the Euro is now 1.326 followed by the rising trend line from the base of the current rally.  I think we will see a pullback to 1.35 before the Euro seeks lower levels.

 

 

USDJPY:

 

090213 USDJPY

 

 

 

 

 

The Dollar closed at Yen 92.66.  No prizes for guessing where it is headed.

 

If as expected we see some base building just below the 95 level thru a sideways correction, we may see a further rally to 100 by the middle of March.  Else the Dollar needs to correct for quite some time for the ripping rally against the Yen.

 

The next week or two will tell us where the Dollar is headed against the Yen.  In terms of time there is room for 95 but not quite 100.

 

 

 

USDINR:

 

090213 USDINR

 

 

 

 

 

The Dollar closed the week at 53.58.  The spike up from 52.88 looks reactive and we can expect the downtrend to resume shortly.  Maintain my view that the Dollar is headed towards a retest of the floor at 51.50 by end of March.

 

A fall below INR 51.50 looks unlikely for the moment.  That said we are in Wave III down here.

 

Gold:

 

090213 Gold

 

 

 

 

 

Gold closed the week at $1666.90.   Gold could possibly trend up to test the top of the trading range defined by the down sloping trend line & even nick to get to 1680-1700 range.  But it would be a deceptive move.

 

In the longer time frame, gold is all set to test $1620 followed by $1525.

 

Silver:

 

090213 Silver

 

 

 

 

 

Silver remains an unmitigated disaster on the charts closing the week at 31.44.  But it might have a trick or two up its sleeve.  Firstly, Silver is headed down to retest $28.50, meaning the immediate trend continues to be down.  The trick could come in the form a bear rally from $28.50 or a wee bit higher after March.  Treacherous territory ahead.  Note Silver is just under its 50 DMA and well above its 200 DMA.

 

HG Copper:

 

090213 HG Copper 

 

 

 

 

HG Copper closed the week at 3.7950.

 

 

Copper came back to test the floor at 3.72 before attempting an assault on the major overhead resistance of 3.84.  Until Copper decisively clears 3.84, there is both time & space to come back to 3.10 like other metals.  So the test of 3.84 over the next few weeks is key.

 

 

WTI Crude:

 

090213 WTI Crude

 

 

 

 

Crude closed the week at $95.72 turning down from just below its overhead resistance at $98.

 

 

Crude has a support at $94.50, which could be, tested over the next week before crude mounts another assault on $98 overhead. Failure to take out $98 decisively could see crude coming back to test is 200 DMA again especially other risk assets correct.

 

DAX:

 

090213 DAX

 

 

 

 

 

DAX closed the week at 7652.14.  DAX is the strongest index in the EU and it is a whisker away from a crucial floor at 7450, a violation of which could trigger a deluge of sell orders.  In terms of time it two weeks away, may be less, from an important date line that could terminate this leg of the rally.  Do we see a violation of 7450 or 8100?

 

As a trader that is an academic issue.  I would go 0::0 and wait for confirmation to short.  As an investor I would clean out the garbage & a bit to create cash to buy lower.  Note the correction will be shallow.

 

 

 

Shanghai Composite:

 

090213 Shanghai Comp

 

 

 

 

No prizes for this one.  Nick or not, a correction down to the 200 DMA from the 2500 region is over due.  It could be sharp, very sharp.  The Chinese overplay on price.

 

S&P 500 [SPX]:

 

090213 SPX

 

 

 

 

 

SPX closed the week at 1517.93.  Much like the DAX it is a week or two away from a very important date line that could terminate the rally.  In terms of price, SPX has already achieved its target and there is no earthly reason why SPX needs to make a new high before going into a correction.  So take out the garbage & hold only the blue-chip long-term stuff.

 

The correction that follows won’t be sharp or brutal.  It will be shallow & keep bull hopes alive.  But values in the mid-cap space could take a severe beating.  But that’s par for the course.

 

 

 

Russel 2000 [RUT]:

 

090213 Russel 2000

 

 

 

 

RUT closed the week at 913.67, a lifetime high over the previous top 870 in April 2011 and well over 6.89% higher than the 2007 bull market top.  Compared to SPX, that quite an outperformance.

 

RUT could aim for 950.  It has about 3 to 4 weeks to make it there.  But if it will, I cannot say.  Both, the parabolic run up and the outperformance in mid-caps vs large caps says to take out the garbage.  Mid-cap corrections can be brutal & un-civilized.

 

 

NIFTY:

 

090213 NSE NIFTY

 

 

 

 

 

NIFTY broke the 5950 support on a retest and closed the week 5903.50.  The break is not decisive but it is not isolated either.  At the very least it puts up all the cautionary signals of an impending correction.

 

There are many scenarios for the ensuing correction and I can’t go into all of them.  But several points can be made.  Firstly about 50% of the major stocks in the NIFTY, and I cycled through all of them chart by chart, are close to their support levels or deep into a correction already.  They can’t crash the market from such low levels.

 

 

Of the sectors ripe for a correction, only two stand out.  FMCG including the cigarette giant and branded pharmaceuticals have outperformed the index right since the crash of 2007 and look ripe for correction.  The IT sector could correct a bit.  Can these sectors crash the markets?  Short answer is no. So I am of the view that we are headed into a correction but it will not be anything like we have seen before.

 

Could the index pullback from 5800 or near about and go on to make a new high before correcting?  Very much so.  In fact that is scenario I favor given the devious way in which we can construct both bear & bull traps!

 

Clear the garbage but stick to your blue chips for a while longer!

 

 

 

 

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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MARKET NOTES: World markets make new highs while NIFTY retests 5950

February 2, 2013 Leave a comment

MARKET NOTES:  World markets make new highs while NIFTY retests 5950

 

 

 

Major Asian markets make steady progress towards breakout points from all time lows.  EU markets are in fine fettle even as the Euro continues its phenomenal rally.  The midcap space in the US is on fire indicating a bullish sentiment.  And the S&P 500 continues to make new highs.

 

NIFTY continued in its corrective mode after breaking above 5950.  It appears determined to retest the break point as support, which is a healthy sign – provided it holds.  Should it do so, NIFTY too will join the other markets to reach for new highs.

 

In the currency markets Yen continued to depreciate relentlessly against the Dollar and the Euro, while the Dollar itself continued to correct down to 79 levels and could go lower.  Weakening currencies help inflate asset values and that’s being translated into market prices.  The INR was an exception as it actually appreciated against the Dollar.  The Dollar could be headed towards 51.

 

Commodities are showing a mixed trend.  Precious metals continue to correct.  Copper could be headed for a breakout while Crude appears to have broken out of a corrective pattern.  An appreciating Rupee and higher crude prices are not exactly bullish for India but then the markets have a mind of their own!

 

Caution is warranted.  While the indices have both time & momentum on their side predicting when they will turn is hazardous business.  We are in very mature bull markets in equities.  They can turn on a dime with little notice.  So protect profits with sliding stop losses.

 

 

 US Dollar:

020213 DXY

 

 

The Dollar closed the week at 79.135 after making a low of 78.915.

 

The Dollar has been correcting down from its July top 84.25 for the last 6 months.  The correction had a logical target 78.50 followed by a deeper target of 76.50.

 

The Dollar’s correction is nearing its end but it is not yet over.  78.50 is a major support for the Dollar and breach of that would open the way for 78 followed by 76.50.  There is still room for both to happen before the correction concludes.

 

In the longer term, remain bullish in the Dollar.  The correct correction could run on until April.

 

 

EURUSD:

 

020213 EURUSD

EURUSD closed the week at 1.3639 after a breathtaking rally.  The currency pair is over-bought & over-stretched but the long-term rally is far from over.

 

EURUSD needs to consolidate & digest its gains.  The 1.35 level now becomes a very important support and EURUSD could consolidate and 1.3450 for a few weeks before heading higher.

 

The logical long-term target for this rally now is 1.4250 and the Euro has both time & momentum to get there.  But first expect a few weeks of consolidation.

 

 

USDJPY:

 

020213 USDJPY 

 

Another spectacular salvo from the Yen in the ongoing currency wars.  The Yen closed the week at 92.72.

 

The logical target for the Yen for this rally was 95.  It has both time and space to achieve its target.

 

Obviously, the Yen is both over-bought and over-stretched.  Besides it is a policy driven movement that is difficult to read from charts & price action.

 

Having said that, barring the occasional running correction, Yen looks set to hit just under 95 before going in for a consolidation.

 

 

USDINR:

 

02022013 USDINR

The USDINR closed the week at 53.1550, decisively violating the up-trend-line from July 2011 that I have tracked.  Furthermore, the pair closed below its 50 & 200 DMA both of which are in the 54.65 region.  Last but not least, the 50 DMA crossed below the 200 DMA signaling a long-term bearish phase in the $ vs. INR.

 

That puts the USD right in the middle of the first leg down of a Wave III with a logical target of 51.35 by the middle of May this year.  To my mind, that’s not a good thing for the young college grads of India as it scuppers their jobs & the main engine of India’s growth.  But who is to tell RBI?

 

 

Gold:

 

020213 Gold

Gold closed the week at $1662, more or less on its 200 DMA.  Gold should have been in the middle of ripping bear rally but instead exhibited serious weakness in price action over last 2 weeks.

 

That leads me to believe that Gold will now put in a bottom before looking up again.  Gold’s first target now is 1620 followed by a retest of 1525 by March end.

 

 

Copper:

 

020213 HG Copper

Copper closed the week at 3.7845 and broke above the well-defined resistance of 3.75 on the charts.  That is bullish but caution is warranted.

 

Firstly Copper has multiple overhead resistances spanning from 3.75 to 3.85.  Until Copper clears the 3.85 level I would be wary of treating the breakout seriously.  Secondly, the “breakout” comes at point where you expect some false signals & hence is suspect.

 

Maintain neutral stand on the metal till the situation is resolved either way.

 

 

WTI Crude:

020213 WTI Crude

Crude closed the week at $97.77 just below its major overhead resistance at $98.

 

Crude could consolidate for a week or more just below 98 before attempting to take out the overhead resistance.  A break above 98 would not only end all doubts about Crude’s future intentions but also open the way to a rally to $110.

 

 

Silver:

020213 Silver

Silver closed the week at $31.958.

 

Silver now enters an area where the price collapse could be fairly rapid & unpredictable.  The target remains $26 by May end.

 

Note the Silver chart is simply a more obvious analog of the Gold chart with a bit of added volatility.  As such it serves for a good check on Gold & raises doubts about Copper’s breakout.

 

 

 

Shanghai Composite:

020213 Shanghai Comp

Shanghai Composite closed the week at 2419, a little short of its major overhead resistance of 2480 that it must decisively break past to signal a long-term bull run.

 

Amazingly, despite the phenomenal rally, the index is not really overbought on the oscillator charts.

 

Besides, the 50 DMA has just crossed over above the 200 DMA signaling an intermediate rally.  Looks likely that the 2480 level will be taken out in due course.

 

 

Nikkei 225:

 

020213 Nikkei 225

Nikkei closed the week at 11,190 after a few days of consolidation below 11,000.

 

Nikkei next logical target is 11,400.  A decisive break above 11,400 will confirm an intermediate bull run on the Japanese market.

 

Exciting times ahead for major Asian markets.

 

 

S&P 500:

020213 SPX

SPX closed the week at 1513.17 and had achieved its target on the charts.  That doesn’t mean the rally is over.

 

SPX’ next major target is 1530 followed by the all time peak of 1575 it made in 2007.

 

The Index has both momentum and time to try for 1575.  The Russel 2000 Index of mid-cap stocks, which is a better indicator of retail sentiment, closed at an all time new high of 911 and could easily be heading for 950 by March.

 

That said, use sliding stops to lock in your profits.  We are in the last stages of a bull market.

 

 

NIFTY:

020213 NIFTY

NIFTY closed the week at 5998 after making a low of 5983.  Nifty has a crucial inflection point at 5950 and I have been saying that the index will retest this point as critical support before resuming its upward march or crapping out.

 

Expect 5950 to be tested early next week.  If it holds, we will be on our way to 6185 followed by 6325.

 

 

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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