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MARKET NOTES: WORLD EQUITY MARKETS 19.01.2014

January 21, 2014 Leave a comment

MARKET NOTES:  WORLD EQUITY MARKETS 19.01.2014

 

World Equity markets continue to exude cheer reflecting modest growth in the global economy accompanied by fairly lose and benign monetary conditions.  Shanghai is an exception as authorities grapple with the problem of excessive speculation in asset prices financed via the Dollar carry trade.  It is not a bubble that lends itself to easy resolution.

 

Back in India, NIFTY continues to climb a wall of worry as general elections loom, fiscal deficit surges and the current account deficit is barely under control following subdued gold & crude prices.  This largely reflects the fact that much of the negativity was already in the price.  All said & done, Indian GDP continues to grow at 5% plus rate and a financial bankruptcy on the external account is a still remote event.

 

Under the hood, there is considerable churn in stock in the US & European markets.  Should the interest rate curve start sloping upwards reflecting normal real growth, the financials will stand to make a lot of money and their valuations are pretty cheap given the bad patch they have had since the year 2000.  Look for values in this sector for further impetus to S&P 500.

 

 

Happy trading.

 

 

 

 

 

 

 

S&P 500:

190114 SPY

 

 

Some people have asked for analysis focused on the near-term.  So presenting the hourly chart in $SPY above.

 

 

To my mind, the drop from 184.75 on 31st December to 181.25 on 14th January corrected the run up from 177 to 184.75.  $SPY has since rallied to high of 184.85 and is now correcting for that run up.  I would be greatly surprised if the bulls yielded the gap just below 183.50 to the bears in this correction.  Following the gap there is much more robust support at 183.

 

I would expect $SPY to resume its rally in the next to 184.25 and beyond.  There is really nothing bearish on the charts so on the charts as long as 181 level holds.

 

Nasdaq 100:

190114 $NDX

 

 

The near term picture for the Nasdaq 100 [$NDX] is similar to that of $SPY. 

 

 

In my view, the drop from 3591.25 to 3500 corrected the run up from 3430 to 3591.25.  $NDX then went on to make a new high of 3610 and is currently correcting for that run up.  First support lies at 3580, which held up on first test on 17th January.  More support exists at 3570 followed by that at 3540.

 

My sense is that the gap between 3580 and 3590 will not be filled here and the index is likely to rally sharply to new highs beyond 3617.  Position traders may like to keep their stops just below 3520.

 

Nothing remotely bearish on the index as such but under the hood tech stocks are showing some signs of exhaustion.  On the other hand financials are likely at the beginning of a fresh surge up.  So do take a look at what you hold than just the index.

 

 

NIKKEI 225:

 

190114 NIKKEI 225

 

 

Nikkei is in a very strong uptrend with first target of 16,700.  I think the Index intends to clear the previous high of 18,260 in the next 12 to 18 months.  That said, 16.700 would be a fairly formidable overhead resistance.

 

 

Nikkei made a high of 16320.22 on 12/30/2013 and has been correcting since then.  Its 50 DMA is currently at 15,368, which should act a support and has been tested successful once.  Further support lies at 15150 followed by a more robust floor at 14800.  My sense is that 15350 floor is unlikely to be taken out in this correction.

 

 

On the other hand I see a high probability that Nikkei may stage a very sharp rally to just under 16,700 and correct from there in a fairly complex move.  The next few weeks are for consolidation.  But my sense is that consolidation will happen in a higher trading range of 15,800 to 16,700 rather than the current one.  Nothing bearish about the Index.

 

DAX:

190114 DAX

 

 

$DAX is in a strong uptrend that will see very brief though sharp corrections over the next two weeks.  The Index is targeting 10,000 plus before the end of May.

 

There will be a bit of consolidation before the index makes a bid for 10,000 and my sense is that having seen a sharp running correction from 2nd December to 14th January, the index is more likely to spike up to just under 10,000 early next week and then consolidate a bit above 9700 for a week or two before making another attempt at the target.

 

 

Day to day plays isn’t my forte.  Simply don’t have access to the kind of data necessary for a proper analysis of the technical play.  So take the above with a bit of caution.  However, I am pretty much confident that [a] 10,000 will be taken out much before May and [b] it won’t be taken out at first or second attempt.

 

Position traders should hold with a stop under 9700.  There is nothing bearish in the index yet.  And all indications are for an early take down of 10,000.

 

 

 

Shanghai Composite:

 

190114 Shanghai Comp

 

 

Among the major world equity markets Shanghai continues to be the most unambiguously bearish.  The Shanghai Composite Index appears headed for a retest of its major floor at 1660 by end of May.  There may be minor corrections on the way but the direction is clear enough.

 

The other noteworthy technical event is the generation of a clear sell signal so late in the bear market with the 50 DMA moving well below the 200 DMA.  I wonder what the market knows what we don’t.  Avoid calling a bottom on this one.  Wait for clear capitulation.  In the near term the index is clearly oversold and could pause a bit.  But the respite won’t last long.  Make a buy list but wait for capitulation.

 

 

NSE NIFTY:

 

190114 NSE NIFTY

 

 

 

 

 

NSE NIFTY appears to be climbing a wall of worry what with the Indian economy being ringed with huge fundamental problems at the macro level.  But then markets have been so hammered in recent years 6 years of a bear market that I for one wouldn’t question the market’s wisdom.  This blog is just about technicals and the message from them is one of cheer.  The markets are headed up though only they know why!

 

The NIFTY made a technical low of 5118.85 on 8/28/2014 and in many ways it can be said to have marked the end of the bear market that began with the crash of January 2008.

 

The NIFTY has been in uptrend since then making a high of 6342.95 on 11/03/2013.  It went into a sideways correction since then and to my way of reckoning, the correction to the run up from 8/28/2013 to 11/03/2013 ended 1/08/2014 at the low of 6160.35, making for a fairy shallow correction to the indices.

 

Since then the Index has rallied to high of 6346.50 and has fallen back a bit from there.  The correction is minor and to be expected as the index can be expected to take 3 or 4 attempts to break free to new all time highs.  My sense is that we could well see NIFTY at 6600 by the end of May or just before India goes into polls for a new government.

 

 

Nothing bearish in the NIFTY as far as technicals go.  I would keep a sharp stop loss at 6100.

 

 

 

 

BSE Small Caps:

 

190114 BSE Small Caps

 

 

 

 

 

 

The BSE Small Caps Index [BSCI] made a low of 5100 on 8/28/2013 and rallied from there to a high of 6145 on 11/08/2013.  It went into a running correction from that point but continued upwards and it is possible that the running correction ended 1/17/2014 although the possibility of another test of the 50 DMA at 6270 in the next 10 days should not be ruled out.

 

The index’s 50 DMA crossed over above the 200 DMA on 12/03/2013.  Currently the Index is at 6476.76, well above the 50 DMA as well as the 200 DMA at 5851.25.

 

The Index Price ROC is in oversold territory.  I expect the index to head for highs beyond the 6750 level.  The steepness of the rally is largely owed to the way stocks were hammered on the way down.  Having said that, there is nothing bearish on the charts.  I would expect a clear breakout of the small cap index above 7700 by May end or before elections.

 

Stay with liquid stocks when dabbling in small caps.

 

 

 

 

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Categories: $-INR, Economy, Markets

MARKET NOTES: 18.01.2014. Is it really time to buy commodities? $DXY $INR $GLD

January 20, 2014 Leave a comment

MARKET NOTES:  18.01.2014.  Is it really time to buy commodities?

 

 

The commodity cycle has been in a downturn from May 2008 and has run through 6 years of a bear market.  While that’s not unusually long for commodities, the cycle is nearing its end and prices look attractive in a historical perspective.  But it is it time to buy?

 

 

I take look below at Gold, Silver, Copper and crude.  Broadly, the technical picture is mixed but the probability of significant price drops towards the tail end of the bear market in things like precious metals is high.

 

 

As noted earlier, it is USDJPY pair that appears to be driving currency markets.  Indications are that USDJPY may take a breather and correct to 100 from it current level of 104 over the next 4 to 6 weeks and that may drive the Dollar lower in other markets as well.

 

In India, INR has been appreciating against the Dollar ever since the Dollar made a high of 68.68 against the Rupee last year.  That correction may now be over and the Dollar could head for INR 64 gain over the next 2 months.

 

 

 

Bulls should avoid calling bottoms although we are getting close to them.  Waiting for capitulation in commodity markets is the better route to profits.

 

 

 

 

Gold:

 

180114 Gold

 

 

 

Gold made a top of $1434 on 8/28/2013 and completed the down move on 12/06/2013 at a low of $1210.15.  Since then it has been in a reactive move up, but actually ended up faltering, making lows of $1193 on 12/19/2013 and again $1181.40 on 12/31/2013.  These two lows shouldn’t really have been there although it’s not unusual in reactive up-moves.  They betray a weakness in the metal even at this late stage in the bearish move counting from the high of September 2011.  One expects bounces at this stage of a bear move rather than a breakdown.

 

My sense is that we are likely to see more weakness in the metal further down the road that tests upward support trend line that stretches all the way from March 2001.  New lows below $1180 appear indicated.

 

The metal is currently positioned at $1251 a notch above its 50 DMA that’s currently hovering in the $1245 area.  In the near-term, we might have the metal continue to rally towards $1270 area by the end of this month.  The market’s reaction to the price in the $1270 will decide the future course of price moves.  A reversal from there will indicate further price breakdowns are in the offing.

 

A move beyond $1280 probably indicates a different wave count from the one I am using here that could take the metal all the way to $1360 or even $1440.  But that appears unlikely given the weakness in price where one expects strength.  Long-term, even if the metal rallies to $1440, the bear move down would be far from exhausted.  India’s Central Bank can rest easy for a while more.  Gold imports won’t pick up in a bearish market.

 

Silver:

 

180114 Silver

 

 

 

Silver closed the week at $20.26, above its 50 DMA at $19.95 but well below its 200 DMA at $21.40.

 

The metal’s price moves follow gold though not exactly or with the same wave counts.  By my reckoning, Silver’s latest leg down began from a high of 8/28/2013 and ended at $19.13 on 12/02/2013.  Since then the metal has tried to rally upwards towards its major resistance of $22.

My sense is that the reactive move upwards will continue towards the 50% retracement level that coincides with a major resistance and the 200 DMA.  Even if the 200 DMA gets taken out, I expect the metal to turn down once again and retest $18 before the complete bearish wave from the top of $49.50 in April 2011 exhausts itself.  Note Silver broke down from its top in April end 2011 as against gold, which began its decent from September 2011.  So expect Silver to lead the way!

 

 

 

HG Copper:

 

180114 HG Copper

 

 

 

To my way of reckoning, Copper completed its last bearish impulsive move at 3.0420 on 3/30/2013 and has been in a reactive uptrend since then that has quite a way to go yet.

 

In the current uptrend under way, Copper made a low of 3.1570 on 11/19/2013 and rallied from there to a new high of 3.3740 on 12/24/2013.  Its been correcting from there and could move down to 3.25 over the next 2 weeks to retest its 200 DMA as a support.  Both the 50 DMA and the 200 DMA are placed close together in the 3.25 area.

 

On finding support at 3.25 as I expect, the metal could head for new highs beyond 3.45.  Copper is not a bearish play and can be bought at a dip to 3.25 or even higher.

 

 

WTI Crude:

180114 WTI Crude

 

 

 

Crude is capable of a lot of surprises at this sage of the play.  So I am gonna stick my neck out for the very short-term only.  We will get a better picture of how things resolve in Crude by early April.  Expect the market to surprise either way.

 

In the near-term, I see crude in a downtrend from the top of $112.22 made on 8/28/2013 and this trend ended in a low of $93.37 on 11/05/2013.  Crude tried to rally from that point, with a few fumbles, but made it up only to $100.75 before turning down and taking out both its 200 DMA [$99] and 50 DMA [$95.4] to make a new low of $91.24 on 1/09/2014.  The move up from there to Friday’s close at $94.37, just under its 50 DMA, is a minor reactive up-move that could exhaust itself in the vicinity of the 50 DMA.  In the near-term – till March end – I see crude drifting down to new lows below $90.

 

Hard to say which way crude will breakout from 87 to 110 range of the last few years.  But a break below $90 could be on the cards.  And that’s more bullish news for India’s crisis managers back home.  Don’t bet on the long side of crude till the end of March.

 

 

 

US Dollar:

 

180114 USD

 

 

 

I still think $DXY is in a reactive up-move from the low of 79.06 made on 10/25/2013 that has not exhausted itself.  The up-move has already retraced 38% and could move up to 50%, which gives it a level of 82.  The Index’s 200 DMA lies at 81.50.  It will probably be taken out some time next week. 

 

Any sustained move above 82 would invalidate my wave count and this analysis.  The downside to the Index is very limited.  So position traders should probably avoid large bets either way.

 

 

 

EURUSD:

 

180114 EURUSD

 

 

 

The Euro made a triple top of sorts at 1.3825 and then turned down to take out its 50 DMA in the 1.36 region to close the week at 1.3539.  To my mind the Euro is now in the second leg of its correction from the top of 1.3832 made on 10/25/2013 with a downside target of 1.3300, which happens to be in the vicinity of the pair’s 200 DMA currently at 1.3346. 

 

Barring minor pullbacks, expect the Euro to drift towards a test of its 200 DMA over the next dew weeks.  However, the intermediate up-move in the Euro from its low of 1.20 in July 2012 is not yet exhausted and I expect the Euro to turn up again after testing its 200 DMA.

 

 

USDJPY:

 

180114 USDJPY

 

 

To my mind, the USDJPY pair has put in an intermediate top 105.44 on 01/02/2014 and has launched into the second leg of the correction for the run up in the pair from the low of 75.79 in October 2011.  Note the up-move from 79, which probably targets 110 or higher is not yet exhausted.  However the pair appears to be in complex “running correction” ever since it made a top of 102.88 in May last year and the current downtrend can be seen as a second leg of that correction although one must expect it to be much shallower.

 

With that in view, expect the Dollar to rally from the current level of 104.29 towards 105.50 but not breach the level next 2 or 3 days before turning down to reach for 100, which also happens to the current level of its 200 DMA.  The process may take weeks but the trend after a brief test of 105.50 again should be down towards 100.  A breach of 104 will confirm the trend.  A decisive break above 105.50 will invalidate my analysis.

 

 

 

USDINR:

 

180114 USDINR

 

 

The Dollar has been in a correction against INR since the top of 68.80 on 8/28/2013.  The correction continues but may be nearing a reversal.

 

The Dollar closed at 61.54 on Friday.  The pair has made a bottom at INR 60.83 multiple times and this will likely act as a floor to further moves on the downside.  The Dollar’s 50 DMA lies at 62.1 while its 200 DMA is way below at 60.34.

 

My sense is that the correction in the Dollar from the top of 68.80 got over with the low of 60.83 on 12/09/2013 and the Dollar is coiling up for a rebound to the topside.  My analysis would be validated when Dollar bounces off to the topside from the vicinity of 61 in a decisive upturn.  In which case I would look to buy the Dollar after the said bounce with a stop-loss just under 60.80 for a intermediate target of 64.

 

A break below 60.75 would invalidate my analysis.  A note of caution, though.  The journey to 64 after a bounce from the vicinity of 61 will be neither one-way nor swift.  The Dollar is also correcting to the downside against other major currencies and this will mute the moves to the upside to begin with.

 

 

Categories: $-INR, Markets

MARKET NOTES: US Equity markets stage a routine pullback from 38% retracement level

August 25, 2013 Leave a comment

MARKET NOTES:  US Equity markets stage a routine pullback from 38% retracement level

 

 

 

US Equity markets confirmed a correction by staging a minor pullback from the 38% retracement level on the main S&P 500 index.  There was some extra excitement in the NASDAQ [QQQ proxy ETF] following an 8% rally in Microsoft welcoming Steve Ballmer’s retirement.  The bear rally is unlikely to change the market direction in either NASDAQ or MSFT.  It did give the bears a good scare though.

 

 

The Dollar’s preliminary moves after the low 80.90 are supportive of a like Dollar rally back to 85.50.  We should see confirmation of that in the early part of next week.  Until that happens, other currencies are likely to just mark time.  In particular the EURUSD pair appears pretty undecided about where it wants to go.

 

 

Commodities were showing an upward bias on a number of charts.  While the rallies in Gold & Silver are the usual counter-trend rallies one would expect in a bear markets, the trends in Copper and Crude suggest commodities may be bottoming out.  For both Copper and Crude, I have had to revamp my wave counts to take into account the inherent bullishness.

 

 

Nearer home the panic in USDINR may have been overdone.  Dollar rallied to a high of INR 65.50 which was my year end target for the pair.  On more sober considerations, I think the market will settle down for some consolidation above 62 but below 65.50.  A rally in DXY would impart an upwards bias to the Dollar in the Rupee market but much of the rally up to DXY 85 is already in the price.

 

 

NIFTY staged a routine pullback from 5250 level after a near panic liquidation.  However, that didn’t look like the capitulation that the market needs.  I expect the downtrend to resume in a more sedate fashion after a brief corrective rally.

 

 

There may not be an early end to world bearish trends.  Look to exit rallies & hoard cash for better buys later.

 

 

 

 

 

 

 

 

 

 

 

Gold:

 

240813 Gold

 

 

 

Gold rallied to a high of $1385.58 as expected in this blog before closing the week at 1370.80.  The bear rally in gold is not yet over and we could see gold rally higher $1425 before it corrects for the price rise from $1180.  But that correction is probably two to three weeks away.

 

 

 

Silver:

 

240813 Silver

 

 

 

 

Silver too has been in a counter-trend rally from the low of $18.17 and made a high of 23.60 before closing the week at $23.1660.  The bear rally may not be done as yet & the metal has the potential to rally to $26 before it corrects for the price rise from $18.17.  The metal continues to be bearish in the long term.

 

 

 

HG Copper:

 

240813 HG Copper

 

 

 

 

Have had to completely revamp my read on Copper following its recent price behavior.  I now think the bottom of 2.98 formed on 21st June was the start of a new bull run in the metal that may see it reach for 4.0 by end of 2014.  First confirmation of my revised read on the metal will come when it breaks [and sustains] above its 200 DMA and major overhead resistance at 3.4250.  That could happen over the next two weeks.  Upon confirmation of 3.4250 as the new support, we could be confident that the metal is in a new bull rally.  In any case, as suggested before, there is no case for continued bearishness in the metal.

 

 

 

 

WTI Crude:

240813 WTI Crude

 

 

 

 

 

As in the case of HG Copper, have completely revised my wave counts on Crude in line with recent price behavior and revert to a simpler wave count.  I now think the low of $77.41 on 21st June 2012 marked the start of another bull rally crude which could see it head for the previous top of $148 by end of 2014.  First confirmation of this scenario would come if WTI crude fails to breach support at $99 in the current correction.  Crude bounced from its 50 DMA at $103.15 last Friday.  Further confirmation would take time but follow when crude breaks atop $110 and sustains above it.  My earlier scenario that called for a correction down to $92 before a significant rally is still possible but the probability of that has receded significantly following repeated bounces in the price from $103 area.  Hard commodities in general are showing signs of reversing long term trends.  Crude and Copper being industrial in use may be the first ones to confirm the reversal in trend.

 

 

 

US Dollar DXY:

240813 $USD

 

 

 

 

 

 

DXY closed the week at 81.53, just under its 200 DMA in the 81.60 price area.  I continue to think the low of 80.8950 on 8th August marked the base from which a new bull rally in DXY has begun.  First confirmation of this scenario will come upon a break above 82 and when DXY observes the 200 DMA as the new support for DXY.  I think this could happen as early as next week.

 

 

A sustained rally in the Dollar will certainly pressure commodities across the board.  Given my read on Copper and WTI crude, it will be interesting to see if these two commodities hold to their rallies despite a surging Dollar.

 

 

 

EURUSD:

240813 $Euro $FXE

 

 

 

 

 

Not offering an opinion on EURUSD.

 

 

 

 

USDINR:

280813 USDINR

 

 

 

 

 

USDINR made a high of 65.56 during the week, which incidentally my target for the Dollar by the year end in Rupees.  The Dollar closed the week at 64.55.  My sense is that the Dollar has overshot its immediate target due to acute panic in the Rupee market and needs to consolidate for a while before its next move becomes apparent.

 

 

Expect the Dollar to consolidate below 65.50 and above 62 for the next 4 to 6 weeks.  A lot will depend of the contour that DXY follows in the international markets.  I think a DXY rally abroad up to 85 may already be factored into the USDINR although that would give the Dollar an upward bias in the Rupee market.

 

 

In any case, the worst for USDINR may have worked itself out of the system already.

 

 

 

DAX:

240813 DAX

 

 

 

 

 

DAX fell from 8438.12 to a low of 8300, just short of its 50 DMA and then corrected upwards to close the week at 8397.89.  There is nothing on the charts that suggests that the downtrend in the index has reversed.  I think the continues on its course to test 7650 support over the next few weeks barring normal pull backs of the sort we saw towards the end of last week.

 

 

 

NIKKEI 225:

240813 NIKKEI

 

 

 

 

 

Nikkei closed the week at 13365.17 and continued its orderly decent towards 12500 price area which is also where its 200 DMA is positioned.  No change in the prognosis.  Nikkei remains in an orderly correction to retest at least the 12500 price area.

 

 

 

Nasdaq [QQQ]:

240813 Nasdaq QQQ

 

 

 

 

 

QQQ closed the week at $76.67 after making a low of 75 during the week.  The pull-back in QQQ surprised because it filled the price gap at 76 in the charts indicating a surprising strength in the index.  That the pull-back gained from an 8% rally in MSFT does not take away from the strength of the pull back.

 

 

That said, the index continues in its corrective trajectory towards 69.50.  Only a decisive new high would negate the drift towards 69.50.

 

 

 

 

S&P 500 [SPY]:

240813 $SPY

 

 

 

 

 

 

SPY showed the true underlying trend in the US equity markets without being clouded by the bear rallies in FB, AAPL and MSFT.  The share has dropped from 172.14 to the 38% retracement level before staging a modest pullback that may continue in the next week.  The index remains on course to test 155 which is also is 200 DMA price area.

 

 

 

NSE NIFTY:

 

240813 NIFTY

 

 

 

 

NIFTY continued to be in a downtrend.  It closed the week at 5471.75 after making a low 5258 during the week under near panic conditions.  However, the pullback from 5258 to 5458 is the usual corrective move for oversold conditions and nothing suggests that the downtrend has halted much less reversed.

 

 

The corrective pullback may continue for a few days but expect NIFTY to resume its downtrend to the 4800 price area by end of the next week.  I would be surprised if the NIFTY does not test 4500/4800 before the current downtrend exhausts itself.

 

 

 

 

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.

 

Categories: $-INR, Markets

MARKET NOTES: A few points for India’s new RBI Governor

August 11, 2013 Leave a comment

MARKET NOTES:  A few points for India’s new RBI Governor

 

 

 

 

India’s new Central Banking Chief, Raghuram Rajan, is no stranger to markets in India and abroad.  In fact he was one among those who warned of the banking excesses back in 2007 and what they implied for the credit cycle.  So what I say will not be new to him.  Nevertheless worth listing out a few things in the Indian context.

 

 

  1. A rally in Dollar is now widely anticipated.  Whether it goes from DXY 80 to 85.50 or 89, the change in valuation of other asset prices will be huge.  All world currencies will be impacted.  $INR has to some extent ANTICIPATED the rally in DXY and wisely so.  But an extension to the DXY rally from 85.50 to 89 will be devastating.  That has huge implications for India’s exchange rate management.  We need to use the crisis to put our exporters on a sound footing.  This is not the time for short-term fixes no matter how tempting they are.  Let the INR find a sustainable level that keeps potential exporters afloat.
  2. The surge in the value of the Dollar comes amidst an interest rate cycle that is turning up.  That means there will be PE compression across the board in every asset class be it equities or commodities.  India has foolishly kept interest rates too high fighting a structural inflationary rise in food prices that were below world prices with high interest rates.  That foolishness has tanked the economy & choked banking.  At some time the RBI will have to ease interest rates in INR markets against the world trend.  That means $INR must account for that fact before hand.
  3. Tanking equity markets across the world will put unprecedented pressure on equity prices at home.  The mess in the coal sector and power sector has clogged banks in cross-defaults.  Growth will tank further unless government sorts out the mess in jinxed coal mine privatization & stalled power plants.  Unrelated businesses must be insulated from cross-defaults for sometime.  Pick up in growth will not be automatic since the fall is not cyclical but also structural.  RBI must highlight steps under an “emergency plan” that need to be taken immediately, election or not.  There is time.
  4. FII flows will not dry up if we let markets function normally.  We shouldn’t worry too much about the losses forced on FIIs.  They understand the inherent risk in equity very well.  Let the markets function and weed out those who don’t add value.  That is a bit counter-intuitive to lay folks but absolutely essential to attract new money into the market. Industrials who weep over the high cost of Dollar should be told to earn some.
  5. Don’t curb any import except Gold, that too strictly through punitive duties with a built in 12 month sunset clause.  Make the sunset clause credible & builtin so that smugglers don’t invest in beating the system.

 

 

Last but not the least, even if NIFTY tanks to 4800, it is not the end of the world.  As usual there will be a wall of cash waiting to invest at the right price provided we get the reforms back on rails.  If FIIs have lost, their gain loss was a gain elsewhere.  So there is no dearth of cash for investment in the system as such. It was RBI who destroyed our $Job economy.  It is for RBI to resurrected it by instituting news ways of managing the INR.  China is a good place to learn the art from.  And yes, get labor reforms through.

 

 

 

 

Gold:

100813 Gold

 

 

 

 

 

Gold closed the week at $1312.20, more or less on, but just under its, 50 DMA.  Gold is in the process of confirming its near term bottom at $1179.40 made on 28th June.  The metal could move down towards the $1200 price area over the next few weeks.  However, the metal is also building a base for the counter-trend rally to follow.  So the price will be a tussle between these two underlying trends till the middle of September or so.  All told, the metal is now a buy at dips, especially in any crash in risk assets, for a tradable rally to the $1550 price area.

 

 

The longterm trend however continues to be bearish.

 

Silver:

100813 Silver

 

 

 

 

Silver closed the week at $20.4070, a notch above the metal’s 50 DMA.  Silver like Gold, appears to be in the process retesting the low of $18.17 as the new near-term bottom.  With the close above 50 DMA, the probability of a dip to $14 now recedes.  Silver too will fall in tandem with other risk assets and I would not take $18.17 as a “confirmed” bottom.  However the next low by middle of September would be the base from which a decent tradable rally in Silver ensues.

 

 

No change in the long term trend which continues to be bearish.

 

 

HG Copper:

 

100813 HG Copper

 

 

 

 

HG Copper spiked to a high of 3.3175, higher than its 50 DMA at 3.16 but below the 200 DMA now positioned just under 3.40.  The spike came on higher than usual volumes.  My sense is that the spike was just a one-off bear squeeze and there is no change in the underlying bearish trend.  One would have to revise that view id the metal breaks above 3.40.

 

 

However, barring a fallback to 3.20 to test it as the new support, the short-term trend in the metal is bullish.  The metal will most likely reconfirm 3.0 as the new support zone along with other risk assets before moving on.  That said, it is the strongest metal on the charts.  Anything below 3.20 may be worth accumulating for the long-term.

 

 

Brent Oil:

 

100813 Brent Oil

 

 

 

 

 

Brent closed the week at $104.87 after bouncing off its 200 DMA  [positioned at $100]  over the previous weeks.  Brent could rally to $112 early next week but the commodity is all set to retest $100 or even lower over the next few weeks along with other risk assets.  I would not bet on the rally’s base trend line holding up either.  That said, Brent in unlikely to do anything below $90 and would be a screaming buy in any general commodity price crash.

 

 

US Dollar [DXY]:

 

US Dollar DXY

 

 

 

 

The Dollar Index [DXY] closed the week at 81.17 after making a low of 80.89 during the week.  As mentioned in earlier columns, DXY is in the process of confirming a near term bottom in the 80-81 price area before moving into a Wave V rally that could target 85.50  [at least] or even higher.

 

 

I suspect the process of confirming is all but over & will most likely be completed next week.  The following Dollar rally could be explosive.

 

 

 

EURUSD:

 

100813 EURUSD

 

 

 

 

EURUSD has been in a counter-trend rally to test the overhead resistance at 1.34 before heading down again to 1.27 over the next 2/3 months.  What we see on the charts is a potential double top at 1.34 that is also reflected in the RSI and Stochastics.  The currency pair closed the week 1.33442 after making a high of 1.34 during the week.  Barring a possible pull back to 1.34 or even slightly higher, I sense the pair will turn down to head towards 1.27 region over next 2 months.  First target for the pair lies at 1.32 which is its 50 DMA price area.

 

USDJPY:

100813 USDJPY

 

 

 

 

 

The Dollar broke through the 50 DMA line against the Yen to close the week at 96.20.  The Dollar is looking pretty weak against the Yen at the moment and could retest 94 early next week.  But as mentioned with regard to the Dollar Index, DXY is in the process of testing a Wave IV bottom close to 80 and in the process the Yen appears very strong.  While a trip down to 94 and the 200 DMA is not ruled out early next week, my sense is that the Dollar can launch into an explosive rally any time next weak and so shorts in USDJPY are inadvisable.  Expect enhanced volatility in the pair going ahead.  I would look to play long Dollar at the pair’s lows.

 

INRUSD:

 

100813 INRUSD

 

 

 

For a broad perspective on the value of the INR [in USD expressed as cents] I examine the reciprocal of the USDINR chart with weekly prices to see how weak the INR is and to get a sense of where it could go.

 

 

INR started it current bout of devaluation/adjustment  in July 2011, when its value was 2.3 cents.  Yes that’s our INR.  Was 2.3 cents; currently is about 1.6 cents.   Taking the simplest model, the first Wave A of the adjust took the INR down from 2.3 cents to 1.7 cents.  That’s a depreciation of 0.6 cents or a 26% devaluation from the value in July 2011.

 

 

In the normal course, one expect the corrective rally B from 0.17 in June 2012 to rally at least to 2.1 cents in April 2013 as shown by the Yellow corrective arrow.  The corrective rally got nowhere near that target and grossly under-performed managing to get to just  1.9 cents.  To me that is one very important measure of the structural weakness inherent in the INR.

 

 

We are in Wave C.  How far can that take the INR?  Note Wave A took the INR down 0.6 cents.  We would expect Wave C to be usually as destructive as Wave A though it can be much more than that.  0.6 cents down from 2.1 cents [the point to which INR “should” have rallied] is 0.15 cents which translates into a USDINR rate of 66.667 to the Dollar.  But if you take the “revealed weakness” in Wave B into account, the INR falls from 19 cents to 13 cents giving an $INR rate of 76!

 

 

Note these are gross approximations to reality; not reality.  So we would expect Wave C to terminate somewhere between the $INR 66 to 75 mark.  That sort of correlates to the anticipated move up in DXY from 80/81 level to 85.50 that I think will unfold in the next 2 to 3 months abroad.  Note also that every other currency is will take a battering against the Dollar.  It is not just the INR.

 

 

Raghuram Rajan, the new RBI Governor should clean out the Augean Stables, sort out the mess in exchange management, and start with a clean slate.  Artificially propping the INR with stiff short-term interest rates hikes and trading curbs is the short road to disaster.   The storms brewing abroad are beyond the control of Central Banks.  The wise will profit, others will go down the tube.  Export or perish, should be his blunt answer to MoF and Industry.  Don’t curb any other import except Gold, that too strictly through punitive duties with a built in 12 month sunset clause.  Make the sunset clause credible & builtin so that smugglers don’t invest in beating the system.

 

 

DAX:

 

100813 $DAX

 

 

 

I have bad news for DAX bulls.  The index closed the week at 8338.31, well below the highest point hit during the week.  Far more importantly, the index failed to rise to 8542.92, the high of the last rally.  That means the index tips into a correction starting next week with a target of 7650.

 

 

We now have to wait and see far down the index will correct.  If this move takes the ensuing move takes the index below 7650, we are into the much anticipated intermediate correction already.

 

 

There is a small probability of the index pulling a surprise and making a dash for 8550.  Use to exit if not done already.  The dash will not change anything much.  We are headed for the 7650 area in any case.

 

 

 

Shanghai Composite:

Shanghai Composite

 

 

 

 

 

 

 

Shanghai Composite closed the week at 2052.24 below it 50 DMA.  That was a huge surprise because the minimum one would expect from such a battered down index at this late stage in the bear market is to at least spike up to its 200 DMA 2170 price area.  It could still do that but it is probably too late for that.

 

What the failure to to rally to 200 DMA implies is that Shanghai too would follow the world indices into another correction which will probably test the low 1850.  That then could be the trigger for an intermediate counter trend rally within a bear market.

 

NASDAQ 100 [QQQ]:

 

100813 QQQ

 

 

 

 

QQQ [a traded proxy for NASDAQ 100] 76.49.  Nothing on the chart says it will not go on to make a new high during the course of next week.  It probably will.  But the advances are coming from poor breadth, poor volumes and from suspect sources.  For instance, main line technology counters such as IBM are already in decline while stocks such as Apple propel the index via counter-trend rally within a long bear trend.  Those are warning signs of an impending correction if not worse.

 

Note the failure in Shanghai and DAX, two of the major overseas markets have in all probability already slipped into a correction.  So be warned.  A big move down to 68.90 on QQQ awaits.  And that is the minimum target.  If the rally from there disappoints or if the market overshoots it, we are headed down for a long while.

 

 

 

S&P 500 [SPY]:

 

100813 SPY

 

 

 

 

A new high on SPY, albeit not very far from 171, can’t be ruled out.  Its value to bulls will be rather symbolic.  And then a correction down to 156 or thereabouts should follow.  If the market overshoots 156, we have an intermediate correction.  If it falls short, the bull market remains intact.  There is no way to tell apriori what will be the outcome.  Volume, breadth, stocks in the indices, declining number of new highs all point to an intermediate top but time alone will tell.

 

 

 

NSE NIFTY:

 

100813 NSE NIFTY

 

 

 

 

 

 

 

 

NIFTY continued it correction by knifing through one support after the other.  Even the long-term trend line support in place sine 2003 was taken out and that has major implications for the NIFTY.

 

 

The above is a weekly chart of the NIFTY to put the current correction in perspective.  If my wave counts are true, [these are counts that have worked well so far] we are into the last stages of a correction for stocks that peaked in November 2010 [ not January 2008] and these stocks comprise such things as private & public sector banks, finance companies, consumer staples, technology etc that make up some 50 to 60% of the NIFTY’s market capitalization.  The chart makes it clear we are in the initial stages of a giant C wave [this is a weekly chart] whose target would well be to retest 4800.  That’s huge bear move ahead.

 

 

Note the move is coordinated not only with Emerging Markets but also the world’s leading equity markets.  So the compression in PEs will compound the problems from a fall in value caused by declining profits.  Worse, both will happen in the context of a tightening money markets world wide amidst an interest rate cycle that is turning up. Not to mention a general election that for once is questioning fundamental assumptions.  I doubt if India has seen such a correction in its history before.

 

Be warned.

 

 

 

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.

 

Categories: $-INR, Economy, Markets

MARKET NOTES: The US Dollar could surprise with a massive rally.

August 4, 2013 Leave a comment

MARKET NOTES:  The US Dollar could surprise with a massive rally.

 

 

 

Commodity markets having been marking time waiting for the equity markets to complete their rallies before they make up their minds.  The currency markets are clearly anticipating a market sell off in equities that sends Dollars racing back to the safe harbor of US Treasuries.  If the scenario comes about, a huge robust Dollar rally will force every other markets to find its new level in relation to it.  That also means commodity markets will finally show us their final support.  Those sitting on cash will have ample opportunity to stock on the best goodies.  So don’t be afraid of cash no matter what pundits tell you about negative real interest rates.

 

 

A surging Dollar will put extraordinary pressure on RBI and the INR.  RBI may be prepared to battle on till DXY gets to 85 but I suspect the true target is 89.  Not sure what RBI’s reaction to $-INR at 70 will be.  RBI had ample warnings of the fiscal & CAD deterioration.  It had also ample warning about INR being over-valued.  Instead of actively making markets & guiding them higher or lower to effect smooth change it slept and then woke up in a panic.  RBI must understand markets are always made, they do not just happen.  If RBI will not do it some other foreign bank cartel will.  The only difference is that the cartel works for its own profit and RBI loses control over the market.  So please learn to make markets; and money.  The days of central banking by administrative fiat are over.  Dead.  Gone.

 

 

NIFTY is delicately poised on the neckline of a large inverted S-H-S with a target of 5000 from the neckline of 5600.  That’s the good news.  The bad news is that there is no rule which says the fall will stop at the target.  All it says is a bounce then results.  There could a short bounce before the neckline is breached to the 200 DMA area.  But in all other respects NIFTY has decided not to wait for world markets to tank.

 

 

Hoard cash.  There will be plenty of time & opportunity at far lower level than these.

 

Gold:

 

030813 Gold

 

 

 

 

Gold turned down from the overhead resistance at $1350 and closed the week $1310.50.  Gold hasn’t retested its new support at $1170.  Furthermore, wave counts favor a retest of the 1150 price zone before a tradable rally ensues.  My sense is that, barring minor pull-backs from time to time, Gold will drift towards $1150 by the middle of September.

 

 

That should give RBI some breathing time in managing gold flows into India.

 

 

 

Silver:  

030813 Silver

 

 

 

 

 

Silver pulled back on Friday from a low of $19.185 to close the week at $19.912.  As discussed last week, Silver is yet to find a credible area of support and my sense is that it will hit the $17 area by end of August.  I don’t think that would be the end of Silver’s bear market though we may get a rally of sorts from that area.

 

 

 

HG Copper:

 

030813 Copper

 

 

 

 

As expected Copper continued to consolidate within a trading range above its recent low of 2.98 and the overhead resistance at 3.20.  There may be a change of bias over the next few weeks from up to down but expect Copper to tread in the same trading range for some time more.

 

 

 

Brent:

030813 Brent

 

 

 

 

 

Switching over from tracking WTI to Brent from this week.  Of the two, Brent provides a clearer picture of the international price movements without getting overwhelmed by temporary pipeline logistics in the US domestic market.

 

 

The basic wave counts haven’t changed because of the switchover though quite a few the “anomalies” in prices have got ironed out.  Brent, as WTI Crude, is in counter-trend rally from the low formed in June 2012 and that cycle appears to be coming to an end in August.  The extent of the next leg down will tell us if the correction in crude prices is over or there is some more consolidation ahead.

 

 

Brent could shoot for $120 over the first two weeks of August before turning down for a correction.  The structure & extent of the next correction will tell us where Brent is headed over the medium term.  Exit at rallies.

 

 

 

US Dollar [DXY]:

 

030813 $USD

 

 

 

 

DXY closed the week 81.978 after bouncing off its 200 DMA  at 81.59.  The correction in the DXY from the top of 85 is almost over barring a retest of 81.50 before the next rally back to the 85 region and possibly beyond that.

 

 

This blog being all about technicals, I won’t venture into discussing the expected correction in equities, the consequent sell off and search for yields in the US bond markets.  But one thing is clear.  A positive real yield in bonds, backed by some GDP growth, is available only in the US and that’s gonna make inflows in Dollar assets a given.

 

 

A resurgent Dollar will rip thru commodity markets, and equities of course.  Nothing will be left untouched.  So the question is will the rally extend beyond 85?  My sense is yes given the extent of correction we saw in wave 4 that is just ending.  Humongous volatility ahead.

 

 

 

 

 

EURUSD:

030813 EURUSD

 

 

 

 

The EURUSD rally from the recent bottom of 1.27540 was completed at 1.3300 and we may be headed back to retest of 1.27 by end of September.

 

 

The pair closed the week 1.32810.  The decent to 1.27 will be paced by the DXY and the extent of sell off that we see in Europe.  Likely to be a very volatile trip down with vicious counter-trend rallies.

 

 

 

 

USDJPY:

 

030813 USDJPY

 

 

 

 

USDJPY closed the week at 98.93. Having made a low of 97.67 the pair is now headed up with a first target of 101.50 followed by another overhead resistance of 103.65.  My sense is the pair will follow DXY up over the next two months.

 

 

 

 

USDINR:

030813 USDINR

 

 

 

 

 

The $-INR corrected down from the top of 61.21 as expected towards the INR 59 area making a low of 58.68 during the week.  The pair’s 50 DMA is at 58.65.  Bouncing of the 50 DMA the pair was back to 61 in double quick time closing the week at 61.09.

 

 

We could have another leg of a correction down to 59 area from 61 over the next few days but the major trend remains up and a target of 62.50 looks close at hand.

 

$-INR cannot remain immune to the strengthening the overseas Dollar where I expect the DXY to rally from 81 to 85 [an up move of 5%].  That makes for a $-INR of 64 just [based on a buy in Singapore & sell in Mumbai model.]  Of course reality is much more complex and some of the move from 81 to 85 is already in the price.  Even so expect an correction to be short & fleeting while the $ trends up to test new highs.

 

 

RBI’s real problems will begin if the US equity markets tip into a deeper correction than 10% and the DXY shoots beyond 85 to 87 or even 89.  The 87-89 is not ruled out.  If you remember I had set my target for DXY for this full rally from 72 ay 89.  And that appears well within reach.

 

 

RBI’s trading restrictions may help it manage the politics but the consequences for its credibility as a Central Banker are not worth contemplating.  RBI was sleeping at the helm.

 

 

 

German DAX:

030813 DAX

 

 

 

 

 

No surprises from the index.  It is proceeding in a very orderly fashion towards its target of 8545 which it should hit by Friday, next week.  The probability of a substantially higher high than 8550 is rather slim though always there.  But it is unlikely to be so high that it rules out an intermediate correction as explained before.  Execute exit plans and wait for the next correction to unfold & set direction.

 

 

 

NIKKEI 225:


030813 NIKKEI 225

 

 

 

 

Nikkei bounced up from its 50 DMA in the 13500 area and closed the week at 14466.16.  The bounce is unlikely to last though it could stretch upwards 15500 as Nikkei plays catch up to the rally in US markets for the next week.

 

 

To my mind, Nikkei remains in a downtrend from the top of 16000 and the downside target, in tandem with other world markets, could be well below 11500.  So the next rally in Nikkei is best watched from the sidelines.

 

 

 

NASDAQ thru QQQ:

030813 $QQQ

 

 

 

 

 

QQQ [Techs in Nasdaq] pulled no surprises and proceeded in a an orderly fashion to to the target zone of $78.  The uptrend has another week or 10 days to exhaust itself.  The possibility of an overshoot beyond $78 exists but many key technology stocks are already into an intermediate correction following below expectation results.  So yes, we could overshoot but not by much.

 

And if QQQ just meets target or marginally higher the probability of the following correction being deep enough to tip the market into an intermediate correction is very high.  Exit and move to the sidelines.  Avoid shorts till we are close to 16th August or we clearly have a top in place.

 

 

S&P 500 or SPY:

030813 $SPY

 

 

 

 

 

Like QQQ, SPY showed no surprises moving towards its target in an orderly fashion.  Price versus volume divergences on both QQQ and SPY are pronounced but something you would expect at an impending top.  SPY has a target of 175.  It closed the week at 170.95.  Clearly a long way to go with about 2 weeks to get there.  The index is not even very overbought at this point.

 

 

Could SPY at $175 or better obviate the need for a longer term intermediate correction?  It is a close call.  SPY tanked from a high of 165.55 in the last correction to a low of 156 or 9.55 points.  On the other hand, it has added only 4 points to the top of the previous rally and could add another 5 before it pauses for a correction.  So we have 9 down – 9 up.  Too close to call at this point.

 

 

Shorts not advised at this point but overall exist all long positions before 16th of August and wait patiently for a correction to sort out the market direction.

 

 

 

NSE NIFTY:

 

030813 NSE NIFTY

 

 

 

 

NIFTY was the real surprise of the week.  First, it failed to make for the top of its trading range at 6240, stopping well short of it at 6065.  Next on the way down, it took out both its 50 and 200 DMAs without a pause.  Lastly the 3 recent tops at 6075, 6200 and 6075 look like inverted S-H-S with a neckline 5650.  The Index itself closed the week at 5677.90 more or less at the neckline.  That’s a pretty unusual run of events and the prognosis can’t be encouraging for bulls.

 

 

In the normal course, I would expect a respectable pullback from the neckline at 5650 to the 200 DMA before taking another shy at the neckline.  I don’t think the neckline will hold for long and that gives the NIFTY a target of 5000.  That would also more or less complete the correction in NIFTY in tandem with the world markets.  Of course the process will take time.

 

 

 

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.

 

Categories: $-INR, Markets

MARKET NOTES: As the markets hit new highs, look to take profits.

MARKET NOTES:  As the markets hit new highs, look to take profits.

 

 

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.

 

 

 

This blog had ventured to suggest that the last correction may not be the beginning of a intermediate correction and that we will have a subsequent shy at new tops.  That scenario  appears to be working out.  Nasdaq 100 has already made a new high, SPX is  pretty close to one, and others such as Nikkei, Shanghai and NIFTY are not far behind.  But this blog had also suggested this rally may be the last before a substantial correction.  Maintain that view unless the new highs are 5 to 6% higher than previous tops.  So keep exit plans handy.  D day could be 2nd week of August.

 

 

There is a rather lengthy note on the $-INR in the blog.  Have always argued our whole foreign trade and foreign exchange management is riddled with flawed assumptions, not so much for lack of knowledge and understanding, but rather to protect vested interests.  Cotton exports against lower cotton prices for local manufacturers is the sort of problem at one end of the spectrum.  The failure to see value-addition as the key variable of domestic prosperity rather than the absolute export numbers is the other.  Take cotton.  What are we exporting?  Sunshine, water, labor and some fertilizer & pesticide.  What do spinners add to cotton by spinning it into yarn?  Barely 10% at enormous cost.  But if you take the distribution of profits between growers and spinners, the lion’s share goes to spinners.  Such is the perversity of our economy.  Forex has been the key fulcrum on which the edifice to transfer wealth from farmers to industry was built under the socialist raj.  The apparatus is still largely intact.  Most economist know of it.  Nobody talks of it.

 

 

No change in the prognosis on NIFTY.  Use the counter trend rally to exit.

 

 

 

Happy trading.

 

 

Yield on 10 year Treasury Notes:

130713 Yield on 10 Year USTs

 

http://stockcharts.com/h-sc/ui?s=$TNX&p=W&b=5&g=0&id=p16570754730&a=308769391

 

 

The yield on 10 year treasury notes continued at elevated levels but moderated a bit, closing the week at 259 basis points after having made a high of 274.  On the long term weekly charts, 280 basis points appears to be a good place to pause from some consolidation before the uptrend resumes.  The climb in yields has been pretty steep

since May.  We could have a few weeks of consolidation with yields dropping back to around 200 bps as the correction sets in.

 

 

Gold:

 

130713 Gold

 

 

 

http://stockcharts.com/h-sc/ui?s=$GOLD&p=M&b=5&g=0&id=p91093061335&a=308778277

 

 

Gold continues to surprise to the downside.  It closed the week at $1277.60 after rallying from a new low of 1212.10.  The monthly chart of gold prices above shows that while $1160 was a support area, Gold is more likely to test the $950 area before it finds some solid support from long term, long only investors.  The wave counts, the support line for the long term uptrend support line and the fractal being traced out by gold prices all point to further weakness in gold prices.  There is plenty of time for gold prices to drift down as well.  Indians would be wise to leave the metal alone for some time but then I have been warning of a bear market in gold for the past 2 years and more.  Don’t see a significant rally in gold prices until after March 2014.

 

 

 

Silver:

 

130713 Silver

 

 

http://stockcharts.com/h-sc/ui?s=$SILVER&p=M&b=5&g=0&id=p94549700653&a=308782266

 

 

Silver’s first major support zone was $20 made a low of $18.17 before staging a minor rally to $20.25, closing the week at $19.792.  The above monthly charts shows the next major support for Silver is at $14 and it has plenty of time to get there.  I don’t think the metal will find any significant rallies from here until it test $14 although it can hang around current levels for a while.

 

HG Copper:

 

130713 HG Copper

 

 

 

http://stockcharts.com/h-sc/ui?s=$COPPER&p=M&b=5&g=0&id=p58042402073&a=308783851

 

 

Copper has been rather reluctant to test levels below 3.0 and has bounced from the region on several occasions in the past.  My sense is that while Copper has more or less finished its price correction, it could mark time in the 2.80 to 3.40 price region before staging a significant rally.  Definitely not a metal to short at these prices.

 

WTI Crude:

 

130713 WTI Crude

 

 

http://stockcharts.com/h-sc/ui?s=$WTIC&p=M&b=5&g=0&id=p58042402073&a=308784188

 

 

 

WTI Crude’s price has been trending up on thinner and thinner volumes for the past 2 years!  That fact alone should make one very wary of WTI Crude’s chart.  The second fact that put’s crude long term chart out of kilter is the fact that it peaked in 2007, long before the rest of the commodities did so.  In my view that is significant price “failure” in on the long term charts and crude’s rather anomalous price behavior points to the same fault line.  There is no doubt in mind that the technicals point to a price of WTI crude in the $80 region in the intermediate term ahead.

 

That said crude has been in a counter-trend rally from a price of $84 since the June of 2012 and that bear rally could have peaked out $107.426.  My sense is that elevated crude prices reflect some sort of a technical bear squeeze that cannot persist for long.  However, keep in mind crude’s tendency to shoot for the highs at the slightest provocation.  My sense is crude will return to test $80 levels before long.  But avoid shorts.

 

 

Reuters CRB Index:

 

130713 CRB Index

 

 

http://stockcharts.com/h-sc/ui?s=$CRB&p=M&b=5&g=0&id=p58042402073&a=308785978

 

 

The CRB Index puts the triangulation underway in commodities into global perspective.  The index itself has little predictive value but it does confirm the notion that triangulation in the open auction markets is perhaps the only way to true price discovery.  Note the 250 support line for the index.  With the index poised at 270, we are not far from support.  My sense is agricultural commodities will recover way ahead of the industrials & precious metals.  But that’s a subject for another day.  Long term bears will be looking to exit shorts in most commodities.

 

US Dollar Index [DXY]:

130713 DXY

 

 

http://stockcharts.com/h-sc/ui?s=$USD&p=M&b=5&g=0&id=p58042402073&a=308786829

 

 

This week’s blog is all about underlying long term trends since markets appear to be approaching an inflection point.  Who looks at monthly currency charts in markets?  Well I do and its very instructive to place things in perspective.  First note that DXY bottomed in 2008 and then confirmed that bottom in 2011.  Its been in an uptrend since then and those surprised by my bullishness on the $ for the past 2 years contrary to all conventional wisdom now know why.  That uptrend is about to end.  If it ends now, or after another 6 months is the moot question.

 

Note DXY has broken out of a fairly large and significant triangle and has since confirmed the breakout to the upside.  That’s the basic reason why I have been suggesting a target of 85.50 for the DXY.  The index can overshoot that target to test 89 before an intermediate correction sets in.  So 2 things stand out.  Firstly, the long bull run in the DXY is now approaching its final run up.  So things will be volatile.  And secondly, wave Vs can be terrible in what the do to price extension.  We are in wave 3 of Wave V from the bottom of 72.50 in 2011 by my count.  Fasten seat belts.

 

 

EURUSD:

 

130713 EURUSD

 

 

EURUSD staged a smart counter-trend rally from the 1.27 price region to 1.32 before closing the week at 1.3066 sandwiched between its 200 and 50  DMAs.  The rally from 1.27 upwards was reactive and the correction underway from 1.37 in February is far from over.

 

 

My sense is EURUSD will return to test 1.27 over the next 4 weeks before turning up.  I don’t think we will see EURUSD below 1.27 in this correction.

 

 

USDJPY:

 

130713 USDJPY

 

 

USDJPY closed the week at 99.21, a shade below its 50 DMA at 99.50.  Recall USDJPY bounced back from 94 after falling from a significant new top at 103.60.  While the bounce from 94 is corrective in nature, and therefore we will see sharp corrections on the way up, my sense is that the corrective way is exhibiting sufficient strength to show higher top than 103.60; something one wouldn’t expect in a cup-and-and-handle correction from 103.60.

 

Not bearish on the Dollar against the Yen.  And that is sort of confirmed by the technical position in both DXY and the EURUSD.

 

 

USDINR:

 

130713 USDINR

 

 

 

 

My data vendor & charting service let DXY, EURUSD, USDJPY and USDINR in particular fall between their two stools. One doesn’t have the data and the other the charts!  So excuse the charts and follow the narrative carefully using whatever charts you have to track prices.  For I am going to show you why I think USDINR will be close to 70 by the end of this year.

 

 

Recall, the journey of 20% devaluation of the INR every decade or so began with reforms in 1990.  It is RBI’s biggest folly that it devalues the INR in sudden bursts of 20% in a matter of weeks and then lets the INR appreciate in the interim.  While that is politically convenient for RBI and Govt., because the bad news can be fobbed off as a one time crisis due to “external factors” as is being done now, it is an absolutely ruinous practice as far as exporters are concerned.  Why?  In the normal course exporters face an appreciating INR under the current scenario and that takes away 2 to 3% of their sales assuming a collection period of 3 to 6 months.  While in an depreciating INR scenario, because it is usually a sudden haircut that disrupts normal markets very few exporters can actually lock-in the benefit of a depreciating INR.

 

That incidentally is one of the least perverse practices of RBI’s exchange rate management.  Unfortunately, RBI treats Forex management as a black art and the few bankers that actually have expertise in the area are more interested in complicating rather than simplifying things to earn fat fees and spreads.  The truth is, China style, constantly but slowly [not more than 3% pa.]  depreciating INR pegged to the $ would best serve India’s interests.  And it would eliminate all the unnecessary volatility in exchange management & reduce bankers’ fat spreads across the board.  But who is to tell RBI?  Our pink paper editors can’t be bothered to note the difference between direct & indirect quotes in the FX markets mangling the English language daily.  So bear with me as I demystify what’s going on.

 

 

Back to basics.  The first mega-wave of the up move of the $ began in 1990/91 when the $ went from INR 10 in 1991 to INR 49 in 2002.  That was a 5 part bull move of the $.  I have part of the chart in my database but can’t show it here.  From the 49 in 2002 point began the correction to the up-move from INR 10.  This is where the full folly of RBI become so obvious and has proved so ruinous to our software & services industry, particularly low value added call centers, transcription services and the like.  From INR 49, RBI allowed the $ to depreciate against the Rupee to INR 39 in 2007.  Which is to say, over the 5 year period, 2002 to 2007, every marginal player in the software & services industry was wiped out by competition from Brazil & Philippines.  Export data from both countries bears out that India’s loss was their gain.  Remember low-value-added services work on paper thin margins, and nothing but rents and telephony as expenses apart from labor.  With little value added except labour even a 3% constant erosion of their profit margin annually wipes out their viability.

 

On the other hand, these businesses create a huge middle class of workers who essentially earn Dollar salaries.  It is their consumption that drives the demand for everything from small cars & washing machines to housing.  When those jobs go abroad, their demand tanks & so does our GDP.  What’s so complicated about this?  RBI should be well aware of all this.  If it still allows a small number of foreign banks to structure the forex market to India’s disadvantage, knowingly or unknowingly, it has only itself to blame.

 

 

And so there was the giant B wave correction from 49 to 44, the A of which did a 5 part impulse wave to 39 in 2008, followed by a corrective B to 52 in 2009 and from the the terminating C down to 44 again in 2011.  Was all this volatility necessary?  Absolutely not.  It only enriched foreign bankers and wiped out our exporters & new jobs created by them.  I kid you not.

 

 

From the level of INR 44 July 2011, the Dollar began the III wave up and we are in the middle of the first of its sub-waves up and the $-INR is already 60.  The chart above begins to track the moves at the $-INR level 44 in July 2011.

The first A wave took the Dollar from 44 in July 2011 to 57.3 in June 2012.  From there, the Dollar has had an orderly correction down to INR 53.5 which ended January 2013.  That puts the current wave up as “C” which could extent to give the full 5 part impulse wave later on.  For the moment we will assume just a 3 part A-B-C wave up.

 

 

What do you have?  As the chart shows, the “a” part of the C wave [which itself breaks down to the usual 5 part impulse wave up] took the Dollar up from 53.50 to INR 61.  We are now correcting for that up-move and the Dollar could retest 56 from the topside in the next 2 to 3 months.  As night follows day, there will be the “c” wave up from INR 56 after the correction some time towards November 2013 or January 2014.  Where will “c” wave take the Dollar?  Connect the tops from July 2011 parallel to the rally’s support line and you get a target for the Dollar of 71.  Safe to say the technicals point to the Dollar ending 2013 at about INR 70.

 

 

Note, we have assumed a mere 3 part A-B-C up from 44 in July, 2011.  That can extend to a 5 part impulse wave whose target would be much higher.  Anybody wants to bet on the $-INR just before the election results?  Yep you got that right.  If C wave extends, the 5 part impulse would take us to elections 2014.  Gawd help us all.

 

 

Trust me RBI needs some very sharp lessons in letting foreign banks run the forex markets to India’s detriment.  One way for it to demystify things is to realize that all that that the foreign bank really does it to borrow Dollars in Singapore and sell the same in Mumbai.  The rate it sells them in Mumbai includes its funding cost plus commission.  And a small premium because for every 100 $ sold it will get back only $85 from the market given our trade & investment deficit.  The balance 15 has to come from RBI’s reserves.  To postpone that 15% immediate outflow, RBI virtually hands over a monopoly to foreign banks since Indian banks face a stiff funding cost in Singapore.  For pennies we hand over something of huge strategic importance to firangi bankers.  No wonder the make such fools of us.

 

 

So, a correction of the Dollar back to 56 and then the final swing up to 71 by year end.  It is not magic, just logic of the markets.

 

 

 

 

 

DAX:

 

130713 DAX

 

 

 

http://stockcharts.com/h-sc/ui?s=$DAX&p=W&b=5&g=0&id=p73783627979&a=308790722

 

 

DAX closed the week at 8212.77 a whisker above its 50 DMA at 8173.  So far DAX is behaving as expected in this blog.  Wave counts favor a retest of the recent top at 8550.  In fact we could have a higher high.  But unless the higher high is at least 5 to 6% higher than 8550, the subsequent correction that follows in Mid-August could tip the index into an intermediate correction.  Look to exist.  Sometimes the risk is simply not worth the potential return.

 

 

 

Nikkei 225:

 

130713 NIKKEI 225

 

 

 

http://stockcharts.com/h-sc/ui?s=$NIKK&p=M&b=5&g=0&id=p58042402073&a=308791043

 

 

The above monthly chart clearly lays out the neat arrangements made for a new high by the managers of Nikkei 225 even as it corrects from the recent top of 15962.  In the initial phases of a bull move, dip buying by left out bulls often lends a momentum to markets greater than the initial impulse.  In the normal course one would expect a cup & handle correction to the rally from 8180 to 16000 which is basically Wave I of a new bull super cycle for Nikkei.  However by going into a correction slightly earlier than expected & from the down-sloping bearish trend-line a trap has been laid for bears.  If enough get trapped, their covering alone will ensure a new high.  Note the candle to 16000 without a body but a huge spike.  Price without buying which points to the bulls’ intention to return after the bears have been trapped.  So avoid shorts on the Nikkei.  In any case it is in a correction with little downside until the B up currently underway exhausts itself.  Note the time element.  A new high would sync with SPX also due for a new high mid-August. Hint, hint.

 

Shanghai Composite:

 

130713 Shanghai

 

 

http://stockcharts.com/h-sc/ui?s=$SSEC&p=M&b=5&g=0&id=p74484342309&a=308791466

 

 

 

As mentioned in my previous posts, Shanghai has completed the second leg of its correction from the top of 6060 and has now caught a counter-trend rally up that could eventually test 2450.  It is not yet the beginning of a new bull move although it might look like it.  China has a lot of time correction to go through although the price correction is now over.  All the same it is nice tradable rally and the downturn can easily coincide with world markets come mid-August.  So don’t be late to the party & get caught.

 

 

Nasdaq 100:

 

130713 NASDAQ 100

 

 

 

http://stockcharts.com/h-sc/ui?s=$NDX&p=M&b=5&g=0&id=p58042402073&a=308792049

 

 

You get such long duration rallies as in the Nasdaq 100 only from an absolute nadir which is what the low of 2009 was for the index combining the low of both the correction for the bubble and the crash of 2008.  In any case, the warning is clear enough.  We are well into a mature rally that is ripe for correction.

 

I wrote in this blog during the last fall that we will have another last leg up and most probably a new high.  Nasdaq 100 closed the week at 3079.07 giving the promised new high.  There is still 2 or 3 weeks for this rally to run.  Regardless, I would be looking to exit positions.  You got your new high against all odds.  Take your money & run.

 

 

 

SPX:

 

130713 SPX

 

 

 

http://stockcharts.com/h-sc/ui?s=$SPX&p=M&b=5&g=0&id=p58042402073&a=308792081

 

 

SPX closed the week at 1680.19 just short of the previous top of 1687.  With that, SPX kept its promise of wave counts that showed there would be another rally after the last fall with the possibility of a new high.  I repeat what I have been saying for Nasdaq.  In terms of wave counts, we have run out of telomeres.  To get an extension you would need a new high 5 to 6% higher than the previous top such that the next correction down doesn’t go lower than 1560.  That’s a tall order so late into a mature rally.  So the prudent would take their money and run.  Don’t play the short game though.  Not yet.  Best to wait for confirmation of an intermediate down-trend.

 

 

 

NSE NIFTY:

130713 NSE NIFTY

 

 

 

 

http://stockcharts.com/h-sc/ui?s=$CNXN&p=M&b=5&g=0&id=p58042402073&a=308792266

 

 

By one count, shown above, but not the one I favor, [both show a similar prognosis but this one is easier to explain] suggests NIFTY is approaching the end of its correction from the 2008 top.  Curiously, the market might hit the bottom just as the election results for 2014 come due.  Coincidence?  No the trick’s been accomplished by an extension to the bearish wave count but I will explain that in another blog-post.  Meanwhile the old prognosis stands.  NIFTY is headed up into a counter-trend rally that can see it make a new high in the region of 6300.

 

What follows will be the terminating C for many old economy stocks like steel and financial scrips like PSU banks that will cause some mind-boggling damage to valuations.  PSU banks in particular, which are some 15 to 20% of the market, look likely to be hit the hardest.

 

 

Look to exit and reenter later after the carnage.  Besides, it is election time.  Regardless of who you favor markets will tank well before them.  Then there is the INR to contend with.

 

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.

 

 

 

Categories: $-INR, Economy, Markets