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MARKET NOTES: Equity markets were resilient through the interest rate turmoil but precious metals collapse.
MARKET NOTES: Equity markets were resilient through the interest rate turmoil but precious metals collapse.
The week saw markets test asset prices in a rising interest rate environment as yields on 10 year US Notes flared up from 220 bps to 265 bps. Bond markets saw huge sell offs as expected but then the storm held its peace. You can sell your bonds but where do you take your money? The hyped up refuge from currencies, precious metals, just tanked with gold price falling an unprecedented 24% in just one month. You cannot sell bonds and walk away. There is no place to hide except in risky assets. You just have to pick the right one at the right time and equities may be the least dangerous option, next only to bonds! So the markets held up to ponder the conundrum!
As discussed in detail below, the technical damage to indices was limited. It shows a weakening rally that is ripe for correction, possibly after this leg of the rally. So I am not changing my wave counts that suggest a mid-August denouement. On the other hand, a tradable rally from current levels is on the cards.
The US Dollar appears unstoppable. Not surprising given the relative strength of the US economy vis-à-vis the floundering in Europe and the deceleration in China. If the $ continues to rally as expected, commodities will continue to tank after a short counter-trend rally. The same holds true for precious metals.
China presents a clear buying opportunity for traders and investors while the NIFTY has some potential for upside in India. Long-term investors should be looking at both for accumulation. Of the two, China is a surer bet till India gets through its general election. The Dollar may seek higher levels against the INR in line with other currencies. That may deter foreign investors in India for a while though. I am upping my target for the $ to INR 63.50 TO 65 range by end of 2013.
Gold:
Feel a certain pity for gold bugs, especially those who were looking to the metal as a hedge against hyperinflation. Gold salesmen proved no better than those peddling dud stocks to gullible investors. Gold closed the week at $1223.70 having made a new low of $1179.40 during the week. First support for the metal now lies at $1150. While gold now looks “cheap” there is nothing on the charts to show it has bottomed out. There is room for further fall both in terms of wave counts and time. A pullback to 1260/1280 is however not ruled out before we have a bottom.
Silver:
Silver closed the week at $19.47 after making a new low of $18.17 during the week. Like in the case of gold, there is no evidence that the worst is over. Having decisively violated the $20 support, the next support for Silver now lies at $14 – a fact this blog has been repeating for months. More sorrow in store for Silver bulls.
HG Copper:
As expected Copper dropped down to retest the 3.0 support and the good news is that it has held up so far. Copper is close to a bottom in terms of wave counts and time if not at one. Should 3.0 hold up over the next week, we could see a decent rally in Copper towards the 3.50 mark. Time to close all shorts in Copper. A counter-trend rally is in the offing.
WTI Crude:
WTI Crude continued to defy the general commodity trend downward. I have been expecting crude to drop down to the $84 region in line with other commodities, but it appears to be marching to a different tune. What can be said is that the move to $84 has failed. In retrospect, the fall to $85.61 on 18th April completed the down move and Crude appears to be trending up again in a complex counter-trend rally. With this in mind, the rally from $85.61 to the top of $99 on 19th June represents a bullish advance and crude has started a conventional correction for it from the top of $99. Having found support at $92, its 200 DMA, crude can pullback to $99 before repeating the downdraft to $90 levels. The down side & upside to Crude appears pretty limited for now.
Yield on 10 year USTs:
Readers of the blog will know I have been expecting a move beyond 230 bps for the yield on 10 year Treasury Notes for weeks. When the move did come, it surprised to the upside with yields flaring up to 265 basis points roiling bond & equity markets. The yields have sobered up after making a high of 265. An orderly pullback to support at 230 bps is now on the cards. But the up-move is far from over and we will see new highs on yields after a short consolidation.
US Dollar [DXY]:
US Dollar, and the short-term interest on it, is emerging as the key driver of markets going forward. Dollar is now one of the few currencies in the world that might offer a positive real rate of return to investors worldwide that is backed up by real though modest GDP growth. After the shock of higher yields wears off, the real returns to holders of Treasury Notes in terms of interest + currency moves may just entice overseas buyers. So expect the Dollar to be driving things for a while.
That said, back to technicals. As this blog has repeatedly stressed, the US Dollar is in a sustained bull move from the bottom at 73 made in May 2011. The top for this bull move may be in the region of 89. Having made a high of 84.595 on 23rd May, DXY corrected down to support at 81 and is now all set for the previous top. There will be consolidations on the way. But my sense is that we will see a new high over the next few weeks. First major overhead resistance now lies at the previous top followed by 85.50. I expect DXY to be 89 by the end of October this year.
My brief foray into the “fundamentals” of DXY is more by way of sketching out the context in which the complex moves in asset markets can be viewed. My view of 89 for DXY by October this year is a purely technical read.
EURUSD:
The Euro has moved down from 1.34 levels and appears headed for 1.27 eventually. It closed the week at 1.3080 well below both its 50 and 200 DMAs. Expect a bout of consolidation below 1.31 before the Euro takes out the support at 1.29. EURUSD is caught between two diametrically opposite trends and may therefore show violent movements both ways. For now, the trip to 1.27 is very much on the cards. First support at 1.29 followed by another at 1.28.
USDJPY:
A lot of people believe it is USDJPY that’s been driving markets of late. Abenomics is a factor but not the major one. It the tectonic shift in Dollar interest rates that are causing the upheavals worldwide. USDJPY is a sideshow. Having found support at 94, the Dollar is now headed back up to the previous top of 103. Expect consolidation on the way. I suspect we will see the traditional cup & handle traced out after the Dollar gets back up to 103 or thereabouts.
USDINR:
Contrary to most Forex pundits in India, this blog has not only been bearish on the Rupee but also bullish on the Dollar in the INR market in line with my long-term bullish projection for DXY at 89 by October end. The Dollar made a high of INR 60.76 this week, pretty much in line with expectations of a new high. A modest orderly pullback to support at 57 and possibly 55 would be healthy to work off the excesses. However, newer highs on the USDINR pair are in the offing as DXY makes new highs in world markets. USDINR is now in uncharted territory and there are no benchmarks to estimate value. My sense is that INR 60 corresponds to DXY 84.50. A move to 89/90 region implies that USDINR should head towards 63.20 TO 65 region in line with DXY by end October. This would need to be confirmed on charts by price action.
DAX:
DAX found support at its 200 DMA currently positioned at 7700 from its fall from the top. Subsequently it rallied to 8015, a significant overhead resistance and may pull in from there back to 7700 to retest the 200 DMA support.
While DAX has often found ultimate support at the 200 DMA to move on all through this rally, the correction from the top of 8500 reveals a significantly weakening of the technical picture. For one, the support at 7950 failed to hold. Secondly the fall spanned by the correction [A-B-C so far] approx. 900 points from the top exceeded the net gain from the previous up move. The weakening isn’t sufficient to trip DAX into a bear move but warns of a reversal ahead. Will this rally result from 7700 result in a new high? That is impossible to say in view of the technical weakness. But it is possible. For the moment, holding my view that we are headed into possible new high by Mid-August before a reversal.
NIKKEI 225:
NIKKEI has been in a counter-trend rally after having made an intermediate bottom at 12435. It closed the week 13.677.32 just under its 50 DMA currently positioned at 13,300. NIKKEI is likely to make for its previous top at 16000 though it may not make a new high this year. My sense is that NIKKEI will play to a fairly typical wave II correction and come back to retest 12400 be end of this year. That leaves sufficient room for a rally to 16000 by mid-August in the works.
Shanghai:
Shanghai came down to test 1950 as expected and sliced through the support to make a new low of 1849.65. My sense is that we have seen the low on Shanghai for now and are now headed back to the 2450 or higher. The rally that ensues is more a counter-trend rally but will have the look and feel of a regular bull wave. However, a quick retest of 1850 early next week is possible. China is a good buying opportunity at these levels.
Russell 2000 [RUT]:
RUT is important at this point in the markets for what did not happen rather than what happened. In the current fall from the top of 1008.23, Russell’s support at 954 was nicked for a day by small margin on closing basis but essentially held in tact. RUT represents the weaker mid-cap space in the US universe of stocks. For them to demonstrate such strength at a time when equity values were taking a beating worldwide is rather significant. It means retail interest in equities is no mood to sell as yet. Bears would be pretty foolish to press their case against retail sentiment. So RUT really tips the odds in favor of a new high for US equities. RUT could come back to retest its 50 DMA early next week though..
NASDAQ 100:
NASDAQ 100 punctured its first support at 2860 during the current correction by a small margin by closing at 1848. Essentially first support held up well and on clearing the first overhead resistance [and 50 DMA] at 2940, NASDAQ appears well positioned for another new high. At the very least, expect a retest of the previous top at 3050. Note however, that for the rally to continue beyond this leg, the new high would have to be significantly higher [5% or more] than 3050. That is not certain at this point.
SPX:
The technical damage to SPX was much more severe than those inflicted on RUT and NASDAQ. SPX tested its support at 1600 by closing well under it on 4 consecutive days. It made a low of 1560.33 during the correction that more than halfway to second support at 1530. The damage can be repaired but it also confirms a weakening rally that is approaching a reversal in the near future.
SPX rallied smartly from 1560 to its 50 DMA at 1620 before pulling in to first support at 1600. The price action after the low of 1560 is constructive and implies that a rally to the previous top of 1690 is pretty much on the cards. Hard to say if we will get a new high by mid-August but the odds look good.
NSE NIFTY:
NIFTY corrected in text book fashion from the top of 6229.45 down to its log-term support line at 5600 before turning up again. I had mentioned in the last blog about NIFTY presenting a buying opportunity. That was on offer last week. NIFTY turned up to close the week at 5842.20, a notch above its 200 DMA. The Index could retest 5750 early next week but is now all set for another shy at 6300 overhead resistance. It may even make a new high in the process. But I would not bet on a rally significantly higher than 6300 at this point. NIFTY will correct in line with world markets, perhaps with a lag and it has a date with a general election to keep. But you still have a tradable rally to 6300 or a bit more.
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: The Upturn in the Interest Rate Cycle cracks SPX & DAX.
MARKET NOTES: The Upturn in the Interest Rate Cycle cracks SPX & DAX.
Yields on 10 year US Treasury Notes spiked up to 254 basis points during the week. The near panic sell off in the bond markets roiled asset prices across all asset classes from commodities to equities. The spike in yields was not unexpected. This blog has pointed out to the upturn underway for weeks now. But the spike above the resistance of 230 basis points was a surprise. The spike will almost certainly not sustain & yields will return to more benign levels.
Commodities, already in the midst of a long-term correction took the spike badly. Gold and Silver made new lows and other commodities including crude moved lower. The correction in commodities is far from over even as we may expect a modest pullback over next few weeks as the panic in bond markets subsides.
Equity markets took the spike on the chin, lurching down quite sharply in the middle of what should have been a reactive move up. The crack in the equity markets is serious and portends a deeper correction ahead. The markets will almost certainly attempt to complete the interrupted up move next week. But it is hard to say if the pullback will be sufficient to reach the previous high let alone make a new top.
As mentioned in the last blog post, the up move under way, & interrupted rudely on Thursday & Friday by the spike, is probably the last one up. It has about half of A-B-C to go depending on how you count it. If it fails to make previous top we are into a fairly long intermediate down trend already. Exit even at a loss if you haven’t done so already.
Investors in China and India have interesting buying opportunities coming up in their current corrections. There will be no dearth of moneymaking opportunities. So take your profits where you have them.
Yield on 100 Year USTs:
In a move that caught most market participants by surprise, the yield on 10-year US Treasury notes spiked up to 254 basis points. I have been warning about the interest rate cycle having reversed for some weeks but did not expect such a sharp spike above 230 bps. The resultant turmoil in the bond markets affected all asset classes from commodities to equities. I think the spike is over done and the bond markets over sold. Expect the yields to return to mean around 220 bps as the panic subsides. On the other hand, the spike has put all on notice that the interest rate cycle has turned for some years to come. Bond markets will continue to sell off though not as dramatically as last week. The rotation out of bonds may have just begun. Where will the investment surplus go from there is the Trillion Dollar question?
Gold:
Gold closed the week at $1292 after making a low of $1275.40. Gold could test $1260 early next week but is unlikely to breach that support. Instead it is more likely to stage a significant bear rally towards $1550 as mentioned previously in this blog. The drop towards 1260 will not alter that scenario. The dip is a short term buying opportunity.
Silver:
Silver finally broke through the $20 support as anticipated in this blog. It closed the week $19.959 after having made a low of $19.31. Unlike gold, the wave count in Silver suggests the down draft in Silver is far from over. The next support after $20 lies at $15.60. It is possible that Silver will test that support over the next few weeks before staging a short-term recovery. I don’t think $20 support will hold for long.
HG Copper:
Copper closed the week at $3.0955 after making a low of 3.019. The metal could test 3.00 early next week but expect a short-term reactive bounce from there to 3.25 region. The long-term down draft in Copper isn’t over yet.
WTI Crude:
True to form, WTI crude spiked briefly above $98 to create a false bullish flag before closing the week at $93.69 after making a low of $93.12. Note crude closed below its 50 DMA at $94 but well above its 200 DMA at $92.3. Wave counts suggest the down draft in Crude should continue towards $84. However, Crude price behavior, and its tendency to shoot for the top end of the trading range at the slightest pretext, suggests an oversold commodity. Expect erratic price movements but a drift down to $84 eventually is on the table.
US Dollar [DXY]:
As expected in this blog, the Dollar staged a sharp rally from 80.50 levels to close the week near its highs at 82.517, a wee bit below its 50 DMA at 82.60 but well above its 200 DMA at 81.10. The Dollar could pull back to 81 level over the next week as it consolidates for a eventual move up and beyond the previous high 84.6. Continue to be bullish on DXY for the long-term – in any case till the end of 2013.
EURUSD:
EURUSD closed the week 1.312 well above its 50 and 200 DMAs both of which are currently positioned 1.3072. The EURUSD spike to 1.34 above 1.32 came as surprise. The pair continues to trace out a complex correction from the recent top of 1.37. EURUSD may retest resistance at 1.32 early next week before drifting down to 1.30 level. Not bullish on the pair.
USDJPY:
As expected here, USDJPY staged a sharp rally from rally trend line at 94 to 98.50, which is also the pair’s 200 DMA. The bounce from 94 has been fast & furious and the Dollar needs to consolidate a bit between 95.50 and 98 before moving up towards its previous top of 103 Yen. The currency markets don’t suggest Abenomics has failed – yet.
USDINR:
USDINR made another all time high of 59.975 during the week before closing at 59.27. With the new top at INR 60, the Dollar has emphatically validated my long-term wave count for the Dollar in the INR market. In the short-term, the spike in the Dollar is grossly over done and the Dollar needs to consolidate above 57 [possibly even 56] before making any fresh move for a new high. Equally, in the long-term, the Dollar hasn’t finished its up-move against the INR. There will be new highs after some consolidation.
DAX:
I had expected a bounce in the DAX from its 200 DMA currently positioned at 7800. [The chart above shows 50 DMA in blue and 100 DMA in red.] The index made a low of 7789.24 and closed there. The current rally’s support trend line lies at 7450 and the index is unlikely to breach that level in this fall anyway. However, the wave counts now suggest that DAX may, repeat may, have commenced an intermediate correction from its recent top of 8434 on 22nd May. DAX is positioned for fairly sharp A-B-C rally from the 7750 region that will aim for the previous top. Whether it gets there or not depends on how much short covering the pullback triggers. Note in previous such situations the distance covered by just the A-B-C leg up has exceeded the downdraft of a full 5-part impulse wave down. So don’t rule out a double top if not a new high.
NEKKEI 225:
Nikkei bounced smartly from its support at 12433 closing the week at 13230, well below its 50 DMA at 13818. Wave counts suggest, Nikkei needs to consolidate for a while above 12400 and below 13900 before making a fresh bid for a new high. A break above its 50 DMA will signal this outcome. As the case with DAX expect a rally from here but can’t be sure if a new high will be made. All that can be said is that the downdraft is over for now and there is space for a new high.
Shanghai:
As expected here, Shanghai continued its downtrend oblivious to what’s happening in the rest of the world. Or may be not. Shanghai closed the week at 2073 after making a low of 2042.88. Weeks ago I had mentioned that Shanghai was likely to do a 100% retracement of its rally from 1950 to 2450. It is well on the way to retest 1950. Again this is China. Don’t be too sure 1950 will hold but I wud nibble at blue chips there for the long haul. China Telecoms hit 52 week lows and are as good a bet as any in the world. Good stocks to look at.
NSADAQ 100:
NASDAQ 100 did the expected things till the Wednesday of this week testing support at 50 DMA just above the gap at 2937. Then it surprised on Thursday & Friday by not only giving away the gap to bears but also cracking through the 50 DMA to close the week at 2877 after making a low of 2853, which is an important support. Net-net, we have an impulse wave down from the top of 3055 and then some. 200 DMA lies at 2800 near the rally’s trend line up. And there is space and time for an A-B-C pull back to the previous top. As I mentioned in the last blog ,it is the structure of the rally from the low of 2900 on 12/06/13 that is crucial in determining if the pull back gives a new high. We had a high of 3000 from there and then a surprise new low of 2860. Things don’t look good for a new high. But you never know. Expect a rally some time next week that at least makes a fair bid at the previous top of 3055.
SPX:
The wave structure of DAX, Nasdaq100 and SPX from their recent tops is analogous wave for wave though the duration and distance covered are slightly different. What applies to DAX and NASDAQ 100 applies to SPX as well. Namely we have an impulse wave down spanning from the top of 1685 to 1610 that tested the 50 DMA and then A-B-C of which B collapsed and closed the week 1592 after making a low of 1577.70. The collapsing B took out both the 50 DMA as well as the rally’s support trend line. The support of 1600 top was also violated.
We still have room for an A-B-C up that will unleash next week. How far that can take us can’t be said. But at the minimum it should target 1650. A failure to reach 1680 will signal the start of 20% or more intermediate correction in the SPX that could span months. Be prepared to exit quickly if you haven’t already.
NSE NIFTY:
NIFTY closed the week at 5667.65 well below both its 50 and 200 DMAs. Its closest support lies at 5600, followed by more robust support at 5500 and 5400. NIFTY is on C wave down of which it has just completed half. The index could take support at 5600 early next week and rally towards 5800 along with the rest of the world markets. But that would be a reactive move up to be followed by another A-B-C leg down that is likely to retest 5400 support eventually. In the long-term, so long as 5400 holds, there is no threat of a collapse in NIFTY. Long-term investors should look for buying opportunities in blue chip stocks in the current fall.
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: World Equity Markets May Attempt To Stake Out a New High
MARKET NOTES: World Equity Markets May Attempt To Stake Out a New High
The spike in interest rates, and the consequent drubbing in equities and bond values, convinced the most ardent skeptic that a turn in the interest rate cycle is now well underway. The process won’t be done in a hurry though. Panic is unwarranted never mind the headlines. Expect yields to drop back to 2% over the next few weeks before drifting up again.
The fall in equity values following the spike in interest rates was sharp but very shallow; stopping just at the 50 DMA for most markets even after the first 5-wave leg down was complete. That shows markets could have another leg up that could make new highs. However, that should be balanced with the wave count of the rally itself, which suggests the next leg up could be the last for some months. So tread warily with exit plans for positions near at hand.
Back home, the Dollar made a new all time high against the INR validating an outcome that I have long suggested much against popular & professional opinion. But a pullback may be on hand and the Dollar may consolidate its gains for many weeks before moving on from here. A panic is unwarranted because the worst may be over for a while.
NIFTY is into the beginning of a complex correction that could trace out a new high even as it reaches for 4500 by 2014. Rather tumultuous times are in store for Nifty, which makes it a trader’s delight but an investor’s nightmare. I expect it will test 5600 before rallying with the rest of the world markets. As with other markets, keep exit plans handy even if it makes a new high.
Happy trading.
Yield on 10 Year USTs:
The yield on 10 Year USTs topped 2.25% before closing the week at 2.12%. The overhead resistance 2.30% on yields is unlikely to be taken out in hurry never mind the near panic in bond markets. While the interest rate cycle has undoubtedly turned it is not as if rates are going to spike to 4% next Monday. These things take a long time & many panics. Expect yields to drop back to 2% over the next few weeks before drifting up again. Long term, bonds remain bearish.
Gold:
Gold closed the week at $1387.60. The short-term correction from the recent high of 1423.30 appears to be nearing an end and gold could resume its rally to $1550 shortly. The bounce to $1550 from $1320 is reactive and long term gold remains bearish.
Silver:
Silver closed the week at $21.9540. The corrective upward bounce in Silver from its recent new low of 20.15 appears to be nearing an end, and the downtrend to retest the $20 floor could resume shortly. I don’t expect the $20 floor to hold when tested. The final denouement appears to converge on mid-August.
HG Copper:
HG Copper closed the week at 3.20150 and appears on course to retest 3.05 level by end July. Copper, among the strongest in the metal groups also confirms a long-term bearish trend. No guarantee that the floor of 3.05 will hold up.
WTI Crude:
WTI Crude closed the week at $97.85. Crude continues to betray the classic signs of an oversold commodity in a bearish trend. Over the long term the price keeps dropping but is frequently interrupted by very sharp rallies that almost negate the downtrend. The rally to $98 from the recent low of 91.57 was reactive and in line with Crude’s odd price behavior. Expect Crude to resume its downtrend to $84 early next week.
US Dollar Index:
The correction underway from the recent top of 84.57 has been as sharp as the rally from 79 level but comes in the place where one would expect it. Having tested the 200 DMA, my sense is that the price correction is now over and the Dollar Index could rally back towards the 83 level as early as next week. Maintain my bullish outlook on the Dollar.
EURUSD:
The rally in EURUSD from its low of 1.2838 could be complete at 1.34 and we could see a retracement of the rally down to 1.31 over the next few weeks. Movements in EURUSD are likely to be confused and erratic but generally speaking it will meander towards 1.37 over the next couple of months.
USDJPY:
USDJPY closed the week at 94.07. While the Yen has grabbed popular headlines for its fall from grace, the fact is that the current Dollar drop hasn’t yet tested even its 200 DMA. While not ruling out a further drop to 91 next week, my sense is that the fall in the USDJPY is now overdone and we could see a fairly sharp rally towards 102 over the next few weeks. Long-term, the Dollar remains bullish against Yen.
USDINR:
USDINR made a new all-time high of 58.98 during the week before closing at 57.49. The new high validates my wave count detailed in this blog many times despite popular & professional opinion to the contrary. My sense is the Dollar needs to consolidate is gains and could now come down to as low as INR 55 before it makes any attempt to stake out new territory. The down move will be reactive.
DAX:
DAX closed the week at 8095.39 just a wee bit under its 50 DMA. Its 200 DMA is further down 7650 and is unlikely to be challenged in the current drop from 8557.56. In terms of wave counts, the fall may already be over, and barring a retest of 7900 early next, we may see DAX rally for 8500 again. Whether it makes a new high or not shouldn’t matter. DAX is due for a major correction over the next few weeks.
NIKKEI 225:
Nikkei closed the week at 12686.52, well below its 50 DMA but also well short of its 200 DMA at 11,000. NIKKEI needs to consolidate somewhere between 11000 and 13000 over the next few weeks before deciding its next move. My sense is that Nikkei could drop to 11500 early next week before rallying modestly towards 13000. Long term, Nikkei is not bearish & uptrend remains intact.
Shanghai Comp:
Shanghai closed the week at 2162.04, well below its 50 and 200 DMAs. The down move confirms 2160 as a new overhead resistance. Furthermore, it validates a wave count that suggests a retest of 1950 over the next couple of months, probably in sync with the rest of the world equity markets. Shanghai could present an excellent buying opportunity in the next few months.
Nasdaq 100:
NASDAQ 100 closed the week at 2943.86 just above its 50 DMA. ITS 200 DMA lies unchallenged way below at 2800. And in terms of wave counts, the first leg of the down move is mostly done already. In short, expect a retest of 2950 early next week followed by a rally back towards 3050. A new is probable but is most likely to be the last for some months.
SPX:
SPX closed the week at 1626.73 bouncing off its 50 DMA. The 200 DMA lies unchallenged at 1500 while the lowest point of this correction failed to dent the previous high at 1600. In short all is well for another new high in the SPX over the next 3 to 4 weeks. My warning on Nasdaq 100 holds good for SPX as well. While we will probably see a new high on SPX, it will likely be the last for some months to follow. So an exit plan for trading longs should be handy.
NSE NIFTY:
NIFTY closed the week at 5808 just a notch above its 200 DMA. Is the correction from the recent top 6229.45 over? While not ruling out that possibility, my sense is that NIFTY should come down to rigorously 5600 level next week before rallying back towards 6300. There is time & space in terms of wave counts to do so. NIFTY is likely tracing out a complex corrective pattern to the rally from 4530 to 6110 that will span some moths during which we could see a new high. I would exit trading position on a rally to 6300.
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: The interest rate cycle in the US continues to turn across maturities
MARKET NOTES: The interest rate cycle in the US continues to turn across maturities.
The big move under way in the markets is the reversal in the interest rate cycle after a bull market of 30 years in bonds. It has caught seasoned investors like PIMCO & Bill Gross on the wrong foot. This week we look at the yield on 5 year Treasury Notes that is poised at a critical level of 1.080%. A cyclical turn in the interest rate cycle is much like turning a giant super tanker. It is a process that takes time. There are reports of significant outflows from bond funds in the US. Rather difficult to say where this flood of money will head but a bit of it is sure to head towards equities and perhaps gold. Smart money will be looking at the falling commodity prices! [Remember I said it first!]. While commodities will undoubtedly correct a bit more, smart money will look to buy the lows for a counter-trend rally in commodities of the sort we see in gold.
The US Dollar hasn’t finished its run up and the price correction may be over. Expect a rally in DXY to finally precipitate the bottoms in commodities. The time-cycles point to a final denouement in Mid-August. EURUSD could surprise by rallying even as DXY rallies! Will Yen take that much of a fall to sustain a simultaneous rally in DXY & the Euro? It’s happened before though not for very long.
Equities have clearly finished their current corrections and are all set to resume their bids for new highs. The structure of the rallies that unfold will determine if they make new highs or not. There is scope for new highs. But recall my warning last week. The ensuing rally could be the last before we see an intermediate correction spanning months that could take 20 to 30% off equity indices.
So tread and trade with extreme caution and tight creeping stop loss limits.
Gold:
Gold continued its uptrend as expected, making a high of $1423.30 before closing the week at $1383. While there will be sharp corrections, the uptrend should continue for a target of about $1500 in the next 6 to 8 weeks. However, long term gold continues to be very bearish.
Silver:
Silver closed below the $22 support for the first time after 2010 and confirms my view that the bottom in Silver lies much below current levels. Silver closed at $21.64. We are approaching a collapse in Silver prices over the next 2 to 4 weeks. I would be surprised if the $20 floor held up in the next fall.
HG Copper:
Copper closed the week at 3.2685, just below its 50 DMA. Copper could retest its floor at 3.00 over the next few weeks as all commodity markets correct in sync.
WTI Crude:
WTI Crude closed the week at $96.03 after making a low of $91.26 during the week. Crude appears to have bounced off its 200 DMA at $91.50 which would normally be considered bullish. But I think the reactive move up is deceptive and crude is more likely to fall than rise. Expect the fall towards $90 level to resume early next week. Bearish.
US Dollar Index:
DXY bounced off its support from 81, which is also its 200 DMA, to close the week at 81.66. Barring a few more sessions of sideways movement, the correction in DXY is complete and we could see a sharp move up towards 83 levels over the next week. Remain bullish on DXY for a target of 87/88 by October end.
EURUSD:
EURUSD closed the week 1.3220 after making a high of 1.3304 during the week. The movement confirms my view that EURUSD is in an intermediate [but reactive] uptrend to test 1.35 levels. However the movement will be jagged & marked by sharp corrections. Expect EURUSD to retest support at its 50/200 DMs in the 1.30 region before moving up again.
USDJPY:
USDJPY closed the week at 97.53 after making a low of 95.02 Yen during the week. USDJPY has strong support at 94 followed by more robust support at 91, which is also its 200 DMA. I don’t think the Dollar rally in the Yen market is over and we will see new highs. Expect some base building at 91/94 levels before the rally resumes.
USDINR:
USDINR finally disclosed its true intentions after much deception. It closed the week at 57.05. Much more deception lies ahead and I don’t think the INR 57.30 top will be taken out in a hurry. Indeed we must expect the Dollar to build a base over 56 [possibly 55] before making a serious attempt to take out INR 57.30.
Yield on 5 year USTs:
US interest rate cycle continues to turn up across the maturity spectrum slowly but sure. The yield on 5-year Treasury notes is poised at a critical resistance level of 1.085%. I expect the level to be pierced to the upside after a few days of consolidation just below the level. The move will further accentuate the flight of money from short end of the bond funds. Where the money will go remains moot!
DAX:
DAX closed the week at 8254.68 after bouncing up its 50 DMA at 8040. With the bounce from 8040, the correction in DAX from the top of 8530 is essentially over. After a few days of sideways consolidation, expect DAX to reach for the previous top. The nature & structure of the rally from here will tell us if DAX will make a new high.
NEKKEI 225:
Nikkei closed the week at 12,887.53 after making a low of 12548.20, which was my anticipated support for this correction. With this the price correction in Nikkei is over barring a few days of sideways consolidation above 12600. We can expect Nikkei to resume its bid for a new top 16000 after such consolidation.
Shanghai Composite:
As expected, Shanghai turned down last week and closed the week at 2210 well below its 200 and 50 DMAs. At the minimum, we can expect Shanghai to retest its first support 2140 over the next week. Shanghai is in a critical region in terms of price & time. A price collapse & a new low are both possible over the 3 to 4 weeks. Bearish.
NASDAQ 100:
NASDAQ 100 closed the week at 2950.30 after bouncing off its 50 DMA at 2900. With this, the correction in NASDAQ from the top of 2999 is complete. Expect the NASDAQ resume its bid for a new high after a day or two of sideways consolidation. Whether we make a new high or not will depend on the structure of the next rally.
SPX:
SPX bounced smartly from its support at 1598, which is also its 50 DMA to close the week at 1643.38. With this the correction from top of 1687.18 is over and we can expect a determined bid for a new top from SPX. I will stick my neck out & say that SPX will likely make a new high by mid-August. A lot of things converge on that time frame.
NSE NIFTY:
NIFTY closed the week at 5881, just above its 50 DMA and close to the anticipated support for this correction at 5850. NIFTY could test 5800 early next week but is likely to rally towards 6300 after that. I would not be surprised to see 6300 pierced to the upside but not by very much. Mid-August deadline doesn’t exactly apply to NIFTY but I would not bet on NIFTY resisting the world equity trends long after that date.
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 next rally could be the last before a major correction.
MARKET NOTES: The next rally could be the last before a major correction.
The big game changer underway in the markets is the turn in the interest rate cycle in the US that will have an impact across all markets. I track this through the yield on 10-year treasury notes. All asset classes will adjust to the turn in the interest rate cycle, some early, and others with a lag. Apart from the bond markets, commodities are likely to feel the impact immediately. Both the markets could see sharp sell offs. On the other hand, speculative markets in commodities are in backwardation indicating excessive shorts. So yes, expect sell offs but no panic as such.
Will money rotate out of bonds and head for equities? With Central Banks bent on keeping interest rates low, there are few assets to flee to if you expect a sell off in bond markets. In fact there shouldn’t be a sell off in the first place except in peripheral junk bonds and the like. Nevertheless, the turn in interest rate cycles is real & Central Bank ability to impose their will on markets limited. Safe to say some money will rotate from fixed income to equities and that might fuel the last leg of the rally in equities.
Equities are in over-stretched & dangerous territory and a sell off is imminent. Wave counts in terms of price and time favor a sell off mid-August but that just indicative. That said, if the corrections now underway across most markets hold first support, the probability of another leg to the rally until mid-August is fairly certain.
Keep very tight stop losses and look to exit longs in a planned manner. Not worth shorting this market till a top is confirmed. There will be plenty of time for that.
Happy trading.
GOLD:
Gold closed the week at $1393 after making a high of 1421.90. It narrowly missed triggering a key reversal day on Friday. While, the long term correction in gold is by no means over, my sense is that it needs to rally a bit more towards the $1460 to $1500 region where its 50 DMA is positioned before making another attempt to retest $1320 floor. Note Gold is in a counter-trend rally that could be rather jagged.
SILVER:
Silver closed the week the week at $22.2430. Maintain my view that we haven’t see a bottom in Silver yet and that the floor of $20 is unlikely to hold when the price does collapse.
HG Copper:
HG Copper closed the week at 3.2925. After rally past its 50 DMA and making a high of 3.418, Copper failed to hold above it. My sense is that Copper is likely to retest its recent low of 3.0 along with the rest of the commodities.
WTI Crude:
WTI Crude closed the week at $91.97, below both its 50 & 200 DMA. Maintain my view that crude is eventually headed towards the $84 region. Over the next week crude could rally to test its 50 DMA placed at 93.65 as the new overhead resistance before drifting lower.
US Dollar Index [DXY]:
DXY closed the week at 83.40. DXY still needs to consolidate a bit more above 83, which is now its 50 DMA. My sense is that DXY will resume its attempt at making new highs towards the end of the ensuing week. Next overhead resistance for DXY lies at 85.50 and we could be there over the next 2 to 3 weeks.
EURUSD:
EURUSD closed the week at 1.2995, just above its 50 DMA at 1.2980 but below its 200 DMA at 1.3025. EURUSD is correcting from its recent top at 1.37 and is presently in a counter-trend rally that could reach up for 1.32. However, having done that over the next 2 weeks, the pair is likely to head for a retest of 1.27.
USDJPY:
USDJPY closed the week at 100.46. The correction in the pair from the top of 103.65 is not yet over and the consolidation & base building over 100 Yen is likely to continue for a few days more. The Dollar appears headed much higher than 103.65 against the Yen eventually.
USDINR:
USDINR closed the week at INR 56.57 after making a high of 56.76. Clearly the Dollar is overbought and needs to work it off. On the other hand, there is nothing to prevent it from rallying all the way to 57.30 before consolidating. Either way, expect the Dollar to consolidate above 55 and below 57 over the next few weeks before it decides which way to turn eventually. I don’t think 57.3 will be taken out quickly or easily.
Yield on 10 year US Treasury Notes:
In some dramatic moves the yield on 10 year USTs made a new high of 2.207 before settling down to 2.13%. Next overhead resistance for the yield lies at 2.30% and we could see that materialize in the next few weeks. Note the yield is now well over its 50 and 200 DMAs. The interest rate cycle has clearly turned up after a near 30-year bull market in treasuries. Its impact will take time to manifest itself in equities. But expect fairly sharp corrections in commodity and bond markets over the next few weeks.
DAX:
DAX closed the week at 8348.84. The index could have a few days more of consolidation before heading up for the last leg of this rally that could end in a fairly sharp collapse in prices. We are in dangerous territory but until the market confirms a top, hazardous to call one. Longs should make exit plans across all equity markets. That said, the last leg could yet deliver significant gains. A confirmation of the support at 8100 should give the bulls a leg up.
Nikkei:
Nikkei closed the week 13774 a bit above its 50 DMA 13600. The longer term bull run in Nikkei is far from over but the spectacular run from 8500 to 15700 needs some consolidation and a 50% retracement of the run up to 12000 will not be out of order. The consolidation isn’t likely to be one way and we could see sharp rallies in the index as it builds a new base above 13000 for the next leg of the rally. Much of the correction may already be done in terms of price though not time.
Shanghai Composite:
The Index closed the week at 2300.59 while its 200 & 50 DMAs are in the 2250 region. On the wave counts I favor for the index, it needs to turn down and retest support at 2150 if the index intends to rally further. In fact the index could retrace all the way down to 1950 over the next few months. The market’s reaction to the prices in 2250 region will tell us which way things will go. In the immediate short-term the Index could rally further towards 2450 but is unlikely to take out that overhead resistance.
NASDAQ 100:
The tech-heavy Index is likely headed into the last leg of its rally that could terminate mid-August. The Index closed the week at 2981.76 and has the gap at 2937 as immediate support. Its 50 DMA is at 2884.38. The current correction has a few days more to go. If the index doesn’t violate its 50 DMA over the next week, expect a fairly ferocious last rally up.
SPX:
SPX closed the week at 1630.74. The index is correcting from the top of 1686.94 first support lies at 1598. The 50 DMA for the index is also at 1598. Upon the index holding the said level as support over the next few days, expect a fairly sharp last rally towards the previous top or even higher. Keep exit plans handy and tighten stop losses just below 1600. Dangerous territory lies ahead.
NSE NIFTY:
NIFTY closed the week at 5985.95. I had expected the NIFTY to correct down to 5850 from the top of 6240 and it appears to be heading that way. 50, 200 DMAs and first major support all coincide in the 5800 to 5850 region that is unlikely to be taken out just as yet. Upon 5850 holding, we can expect a fairly sharp rally towards 6300.
NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.
sonaliranade 