Home > Uncategorized > MARKET NOTES: The correction is here.

MARKET NOTES: The correction is here.

MARKET NOTES:  The correction is here.

 

NIFTY announced its intentions with a near crash though it wasn’t as severe as I expected.  5500 surprisingly wasn’t taken out although that is no reason to cheer.  Nikkei has been correcting for long.  The suspense was rserved for the US & EU markets.  My reading of the charts shows both EU and US markets have finally tipped into a correction that might not be the usual one shot affair.  See the NYSE Composite chart for more on that.

 

The currency markets were marking time for the Dollar to bottom.  Chances are that DXY has indeed bottomed at 80.90 and is now sitting at the cusp of Wave V rally that will likely create new highs.  Both EURUSD & USD JPY more or less confirmed the 80.90 bottom in DXY.

 

Metals staged a bear rally.  Not unexpected given the new lows most commodities have made recently.  It will be interesting to see how long these bear rallies sustain as DXY rallies and equities come off their highs.  I suspect not for very long as people get risk averse.

 

Nearer home, RBI imposed a slew of capital controls curbing the demand for Dollars in the INR market.  It was a self-defeating step except for the 10% import duty on gold which is legitimate from an equity point of view.  RBI may have forestalled a move to the $INR = 70+ level with its controls but I suspect we will still see $INR at 62.50 to 65 range by year end.

 

This is the beginning of a correction which may not be the usual 1 leg affair.  So wait to see how markets shape at the lows.  Don’t catch falling knives.

 

Gold:

 

 

170813 Gold

Gold closed the week $1371, but well below the congestion zone of $1380.  The close also above the metal’s 50 DMA, which is currently in the 1300 price area.  The metal could rally higher to the 200 DMA price area of $1500.

Very difficult to see the metal top $1500 in the near future.  I would look to sell the metal again above $1500.  Until then investors not already into the bear rally should avoid trading the metal.  Trading bear rallies for the very short-term is a mug’s game.

Long-term, the metal appears pretty bearish.

 

 

 

Silver:

 

170813 Silver

 

Silver closed the week at $23.20, surprising with a bear rally that knifed through its 50 DMA on the way up.  Silver is in a counter-trend rally from its recent low, and while the sheer size of the rally looks impressive, the wave counts suggest new lows in the metal are not far off.  The present spike can extend $26.  However, the meta is likely to trend down by October end looking for new lows.  Avoid trading the rally if not already in.

 

 

HG Copper:

 

170813 HG Copper

 

Copper continued in its bear rally mode closing the week at 3.363 just a wee short of its 200 DMA in the 3.40 area.  It will probably nick it next week, but as discussed last week, this is a bear rally and its is hard to see any decisive move beyond 3.45 at this stage.  I would expect to see the metal to continue to trend sideways till the end of October.  While a new low in Copper is unlikely below 2.95, the correction in the meta in terms of time isn’t over.

 

 

BRENT Oil:

 

170813 BRENT

 

Brent too continued in its counter-trend rally from the recent low of $98.95, closing the week at $110.40.  The rally can extend to $117.50 over the next week or so.  However, maintain my view that Brent will turn down back  from $117 price area towards $98 and continue is a down trend there after for a long time.

Traders should look to establish shorts in this bear rally at higher levels.

 

 

 

US Dollar [DXY]:

 

170813 DXY

The US Dollar is in the process of confirming a bottom at 80.90 or thereabouts before rallying back to its previous top.  As a part of this process, DXY rallied from a low of 80.97 to 81.995 and then corrected down to a low of 81.06.  The process of confirmation is complete and I expect a fairly sharp & robust rally in DXY from next week.

First target for DXY from current levels is 82  followed by 82.70  and possibly 83.21.  Position traders can go long with a stop just under 80.50.  This Dollar rally could be spectacular.

 

 

 

EURUSD:

 

 

170813 EURUSD

EURUSD turned down from 1.3400 [the double top discussed last week] to make a low of 1.32050, just short of its 50 DMA and corrected upwards to close the week at 1.3329.   Expect EURUSD to turndown again from here towards the 50 DMA.  I expect the 50 DMA to give way towards the end of next week & EURUSD to then pause & correct from its 200 DMA.

 

EURUSD is more likely to be driven by DXY than its own steam.  But expect the broad trend to be downward barring corrections.

 

 

 

USDJPY:

 

170813 USDJPY

 

USDJPY closed the week at 97.52.  The currency pair presents a pretty confusing picture on the charts.  The Dollar has been correcting down against the Yen from the high of 103.56 and that correction continues to propel the $ down towards 94.  On the other hand, the correction in DXY is very nearly over while USDJPY is still high up at 97.50 instead of the 94 that one would expect.  The strength in the Yen is puzzling.

I expect USDJPY to reconfirm its recent bottom at 96.89 before moving up with DXY.  No targets for the currency pair.  Will avoid trading it until a clear trend is confirmed.

 

 

 

USDINR:

 

170813 USDINR

 

$INR closed the week at 61.65.  Had expected some consolidation in the currency but apparently the panic is such that normal corrections are fleeting.  I would expect the $INR to range between 60 to 62 over the next two weeks.

Maintain my target of 62.50 to 65 for $INR by year end.  Note the charts, & my methods have, little validity for a reliable estimate given the trading & other restrictions imposed by RBI on $INR.  So treat estimates with more than due caution.

 

 

 

DAX:

 

170813 DAX

 

DAX closed the week at 8391.94.  A few points may be noted.  First the wave counts indicate the current leg of the rally ended on 14th August at a high of 8457.05.  This high was lower than the high of 8557.56 recorded on 22nd May.  These two facts, together with the large number of divergences in the charts & oscillators indicate DAX has turned down for an intermediate correction.

A lot will now depend on where DAX ends up in this leg down.  The logical target should be 7650 which is well below the the Index’s 50 and 200 DMAs.  If that support is decisively taken out, we will be in an intermediate correction spanning many months.  Too early to give the leg down its own wave count.  Time will tell.  Don’t bet on second chance in this market.

 

 

 

NIKKEI 225:

 

170813 NIKKEI 225

 

NIKKEI was the first major market to turn down.  There have been no surprises at all.  The index closed the week at 13650.11 well below its 50 DMA.  Note the 200 DMA is in the 12000 area while the previous low was 12435.  I would expect Nikkei to at least test its 200 DMA rigorously in this leg of the down correction.  So the index has a lot of downside.  Not sure what that means for the Yen though.

 

 

 

Shanghai Composite:

 

170813 Shanghai Comp

 

Last week I mentioned the surprise that Shanghai hadn’t produced the expected spike above its 200 DMA.  Well, the index produced one this week but it was just a spike with a small candle body.  More likely traders telling other traders we know it should have been there and we will get back to it at a more opportune time.  Be that as it may, there is no sign that the correction in the Chinese market is over.  I suspect Shanghai will correct down with world markets to test 1850 again and may then rally into its 200 DMA before beginning the last major leg to its correction.  Shanghai is into a decade long bear market if not more.

 

 

 

NASDAQ 100:

 

170813 NASDAQ100

 

Decided not to bore you with a recap of how right I was about the US markets.  You can go back last two posts to see for yourself if interested.

NASDAQ 100 turned down after making a high of 3149.24 on 13th August more or less on D-Day.  And then it gapped down to close at 3073.91.  NASDAQ typically is the most volatile of the major US indices.  But it traces [with lead or lag] every move of SPY.  So while its not clear from the above chart if Nasdaq 100 has tipped into an intermediate correction, an examination of the NYSE Composite Index and SPY given later do show that we could be into a fairly long intermediate correction.  Not confirmed of course but the logical argument for it is very sound.

First major target for NASDAQ 100 from here is 2825 which is also its 200 DMA.  So it should be fairly clear that the 200 DMA will decide the future course of the market.

 

 

 

NYSE Composite:

 

170813 NYSE Composite

 

First point.  NYA made a high of 9695.46 on 22nd May and a lower high of 9690.10 on 2nd August.  In short, from the previous rally top in May, after a correction, the index failed to make a new high in the current rally.  The index’s target on the downside, the low of the previous correction is 8820, and that’s well below the 200 DMA, a serious breach of which will trigger an exodus from long-term investors.  Furthermore, the May high is below the 2007 high recorded by the index.

Now the powers-that-be can knock off duds from NASDAQ100 and S&P500 and replace them with new better performing stocks periodically.  That legerdemain keeps the indices ticking along nicely.  But you can’t pull that trick on a composite index like the NYA because it includes all the stocks on the NYSE.  A stock would have to delist to exit.  So NYA presents a truer, less “managed” picture of the market.  And NYA says new highs on SPY yada yada notwithstanding, the aggregate of stocks on NYSE are in a multi-year bear market.  In this leg up they barely reached the previous top.  The main trend is down.  Will the market reach below its previous low?  Common sense says it will.  Ergo we have an intermediate down-trend or a sideways market.

Keeping this larger picture in mind, now look at the exchange “managed” indices to decipher their next moves.  To my mind both NASDAQ100 and SPY have already tipped into an intermediate correction subject to confirmation by a lower low.  But then you need to know if you will have a lower low now & not when it is confirmed!  The probability of a lower low is pretty good IMO.  Hence the NYA chart here.

 

 

 

S&P500 [SPY]:

 

170813 SPX

 

 

Note the contrast between SPY above and NYA in the previous chart.  Deception, thy name is market.

So SPY did make a new high in the current rally but I take that with a small pinch of salt firstly, because my wave counts show this is the last rally possible before an intermediate correction, and secondly, because the top here isn’t confirmed by a similar top in NYA.

SPY closed the week at 165.83.  The downside target for this rally is 154, which is the price area of the index’s 200 DMA.  I pick that as the target because other indices show the markets long term trend represented by its 200 DMA is going to stressed before the market turns up if it has to.  SPY’s previous low though was 156, not very far from 154.

The market will tell us if there is a second leg to the current correction in due course.  Beware this isn’t likely to be 1 leg run-of-the-mill correction.  So wait to see what happens at 154 before you buy back into the market.

 

 

 

NSE NIFTY:

 

NSE NIFTY

 

NIFTY closed the week at 5507.85 after turning up briefly from its support at 5473.  The index’s 50 DMA has just triggered a long term sell signal on the charts.  So barring a minor scuffle at 5450, the index is more likely to cave below towards the 5300 price area where some support exists.  However, given the correction in world markets, my sense is NIFTY will in all probability test 4500-4800 range rather rigorously in order to have a robust base for a future rally.

 

Not the time to catch falling knives.  We are most likely towards the beginning of a correction in NIFTY, [in this leg] than towards the end of it.

 

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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