MARKET NOTES: Commodities likely to turn up. $GLD & $XAD

January 8, 2014 Leave a comment

MARKET NOTES:  Commodities likely to turn up.  $GLD & $XAD



Commodity markets in general are in the very early stages of recovery but all of them aren’t likely to move in tandem.  Below I take look at the CRB Index for 17 commodities, the Aussie Dollar vs. US dollar and the price trends in Gold, Silver, Copper and WTI Crude.


This post should be read together with the earlier post on Global currency markets.  A further post on equity markets follows.





CRB Index:



050114 $CRB Index




I have shown the weekly chart of $CRB commodity Index to get a good fix of where we stand in the ongoing commodity correction cycle after the great crash in 2008.


My sense is that we have seen the second leg of the correction in commodities commence from 370.88 on 4/29/2011 play out in two halves and end in the bottom on 11/19/2013 at a low of 272.9.  Note the low of November 2013 was marginally higher than the low formed in June 2012 at 267.40.


We should therefore now expect the Index to bid higher and try for the region between 325 and 335 over the next 12 to 18 months.  The probability of a lurch below 270 is extremely low.


That said, the Index moved to a high of 285.3 from the low 272.9 in November, which to my mind represents the first of many legs of a move to the upside. The sharp sell off from there is simply a correction to the first leg up.  The Index closed at 277.12 on Friday showing a retracement of 66% from the top.  While not ruling out a 100% retracement my sense is that Index will turn up come Monday and after a short consolidation, keep moving up towards 325.  The move up is also corrective.  We aren’t done with commodity correction as yet.






050114 Gold




I had expected Gold to at least try and breach the low of $1179 formed on 6/28/2013.  In the event, Gold got close to that level making a low of $1181.40 on 12/31/2013.


Gold closed last Friday at $1238.60.  Barring the usual short-term corrections, I don’t think we will see another attempt to take out $1180 in this leg of the correction.


On the other hand, Gold is now set on a corrective move upwards and could move to $1450 to $1500 range by mid-April.  The long-term prognosis for the metal continues to be bearish.  However, don’t short gold till you see the highs of mid-April.




050114 Silver





I have been expecting a divergence between Gold & Silver prices but there simply hasn’t been a spectacular one of the sort I thought should happen.  There are significant differences in the pattern of correction underway in both metals though.


Silver could show a muted uptrend in prices in sympathy with Gold over the next few weeks & move up to $22-$25 range.  However, I continue to expect a price breakdown in Silver by June end 2014.  To my mind there is no tradable opportunity in the metal to the upside until we see capitulation below $18.




HG Copper:



050114 HG Copper




Copper remains the most “bullish” of metals in the CRB Index.  It made a low of 2.9875 on 6/24/2013 and then tested its 200 DMA repeatedly before making a higher low of 3.1240 on 11/19/2013.  Thereafter, the metal took out the top of its 6-month trading ranging range by breaking convincingly atop 3.35, putting up a bullish flag to make a high of 3.4245 on 1/02/2014.


Meanwhile, the metal’s 50 DMA has pierced through its 200 DMA from below in the region of 3.26 well below the current price of 3.35 signaling a golden cross.


My sense is the metal will move up a bit, to perhaps 3.50 or so and do a flattish correction that tests the previous trading range top a few times before breaking away upwards.  Position traders could long the metal at dips with a stop-loss a notch below 3.25.





WTI Crude:

050114 WTI Crude




WTI Crude has been in a corrective uptrend from the low of $77.50 made on 6/22/2012 to the high of $109.22 made on 8/28/2013.  It has been correcting from that high and made a low of $92.30 on 11/27/2013.  In the process, Crude generated a sell signal with the 50 DMA piercing through the 200 DMA to the downside at $98.47.  Crude rallied from the low of $92.30 to nick the 200 DMA and turned down again from there taking out both the 200 & 50 DMAs in the process.  All told that’s a sharply bearish picture but its very sharpness suggests that it might just be the usual bullish correction in an uptrend.


That said, first support for WTI crude lies at $92.30 and I would be surprised to see a significant breach of $92 given that the commodity is already oversold.  A more robust support follows at $87.  While Crude could bounce along above $92 till mid-March, 2014, I would look to accumulate the lows around $90-92.  There isn’t much downside to WTI crude below $92 because it’s pretty much done with its long-term cyclical correction from the top of $147.27 in July 2008.






050114 $XAD





Am unable to show the spectacular textbook bullish run up in the Aussie Dollar vs. US Dollar here.  But in many ways the story of $XAD from the low of 0.47730 in April 2001 to high of 1.1080 on 7/27/2011 is the story of the Chinese demand for Aussie commodities.  It is therefore interesting to see what $XAD is doing at the moment.


$XAD went into a sharp correction from the level of 1.108 and is currently placed at 0.8943, showing a retracement of 34% from the bottom to the top.  My sense is we could see a retracement to 0.80, which is top of the previous long term trading range for the $XAD from 1985 to 2007.


The other interesting thing about the $XAD is the timing.  According to one wave count, the earliest end to $XAD’s correction would be around mid-March and if so, the target could be 0.85.  By another count, which I favor, the correction in $XAD could extend to early 2015 and the target could be 0.80.  The latter scenario points to delayed recovery in the Chinese economy.  In either case $XAD would give early clues to renewed Chinese buying in commodity markets.


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January 4, 2014 Leave a comment

MARKET NOTES:  Currencies & US interest rates




The story of currency markets since July 2012 to December 2013 can be explained by the depreciation of the Yen.  In the 17-month period from July end 2012 to December end 2013, the Yen depreciated by roughly 55% against the Euro and 35% against the US Dollar.  In the same period, the Euro appreciated by about 16% against the US Dollar.  Yen weakness rather than anything else has been driving currency markets. This may continue for a while longer as Abenomics plays out fully in Japan & China.


The second thing to note is that 10-year yields on US Treasury notes are about to break above 300 bps and head towards 380 bps over the next 6 months.  Some of this may already be priced into the equity markets but we can be sure not all of it is in the price.  On the other hand, equity markets may actually view an increase in long-term interest rates as confirmation of growth at least to begin with.  The impact of rising interest rates on the US Dollar may also be muted to begin with since other rates too are likely to rise with the exception of Japan.


Back in India, the attention will remain focused on the US Dollar which is likely to weaken modestly against the Euro but strengthen against the Yen over the next few months i.e. till mid-April, 2014.  However, the USDINR charts show that the first leg of the correction to the run up to 69 may be over, and the Dollar could move in the next few weeks to test the overhead resistance at 64 albeit gradually.  A vault over 64 may take a while though as the second leg of the correction kicks in.


A lot will depend on how the equity markets in the US play out in April/May this year.  A correction there, long overdue, could change all the variables in the current equations.  I shall have more on that in the second half of the week.



Happy New Year to all.




040114 $TNX


I have put up the long-term weekly chart of yields on 10 year Treasury Notes [$TNX] in order to show where we are headed in terms of interest rates on US Treasuries.  Note the current yield on 10 year Treasuries is exactly 300 bps.


On a weekly basis, the yield has breached the previous top at 295 bps and has fallen back a bit to test it as support.  The yield has more robust support at 285 bps.  My sense is that after a few days of consolidation, we are likely to see yields move up 320 bps or higher.  On the price charts the price of treasuries could fall 118 from the current level of 123.50.


Though significant by itself, as it confirms a long-term upward shift in interest rates, the move may not impact equity and currency markets all that much since it is widely expected.  Nevertheless, the market’s reaction to a move above 300 bps in yields would be fraught with interest.






040114 $USD



The US Dollar is placed in a zone from where it can shoot for $DXY 90 or dive for $DXY 70 with equal range and more or less equal probability.  The Index closed at 80.9550 on 01/03/2014 and is one of the most difficult currencies to call at this point.


The Index’s 200 DMA lies above at 81.65 while the 50 DMA lies at 80.52 below.  I would be reluctant to call the currency either way until it decisively breaks below 79 or above 82.  That said my sense of the long-term trend in the Dollar is that [a] it bottomed out at 71.88 on 4/21/2008 and [b] that it is correcting down in an orderly impulse wave starting from the top of 88.46 made on 06/07/2010.


With that larger picture in mind, a correction is under way from the top of 84.78 made on 07/09/2013 mid-April, 2014.  For the near term, $DXY can shoot for 81.68, its 200 DMA but is unlikely to sustain above it.  My sense is the Index will nick the average and head down again for a retest of 79 before it makes up its mind on the direction in which to head.  I am bearish on $DXY till Mid-April. A word of caution is in order.  $DXY can compress going forward or show extreme volatility.  Compression would be a bullish indicator, while extreme volatility with a mean of 80 would be bearish.  That is best that I can do at this point.




040114 EURUSD



EURUSD is an uptrend from a low of 1.20 made in August 2012.  The uptrend has a target of 1.4250 ending mid-April 2014.  The pair’s 200 DMA lies well below the current level of 1.35870 at 1.33.  The 50 DMA is currently placed at 1.36, just a bit above Friday’s close.  The current correction from the top of 1.3892 made on 12/27/13 in no way threatens the long-term uptrend.


That said, EURUSD is likely to find support at 1.3550 and that support is followed by more robust support at 1.3450, which is unlikely to be breached.  I expect EURUSD TO turn up again from 1.3450 or above and head right back up to challenge 1.40 again.  1.40 is an important overhead resistance that may take more than 3 or 4 attempts to take out.  But that’s the direction in which EURUSD is headed as soon as the current short correction ends.





040114 USDJPY




The Dollar has been in a major uptrend against the Yen from a low of 75.6 made on 10/28/2011 and that uptrend has a target of 110 Yen and is intact.  The 200 DMA of USDJPY is placed at 99.45 Yen while the 50 DMA is currently at 101.7.  Both the averages are well below Friday’s close of the Dollar at 104.82.


USDJPY took out the previous top of 103.70 made on 5/22/2013 in the current rally making a top of 105.440 on 1/02/2014.  The current correction is little more than one intended to test the last top as the new support.


With that in view, first support from the current level lies at 103.50 followed by a more robust support at 101.50.  My sense is the Dollar might take a breather around 103 for 2 to 3 weeks before heading right back to 105 and above.  “Abenomics” is determined to run the full course and it’s probably the right thing to do for Japan at this point.




040114 EURJPY




As the Euro is strengthening against the US Dollar, and the Yen is weakening against the US Dollar, we take a look at the EURJPY, the price of Euro in Yen, to check if the trends in place bear out the prognosis for the US Dollar.


The Euro has been on uptrend against the Yen since the last week of July 2012 from a level of 94 Yen.  It topped out recently at Yen 145.67 in last week of December 2013, showing an appreciation of 55% over 17 months.


During the same period, the US Dollar appreciated against the Yen going from 78 Yen in End July 2012 to 105.25 in December 2013 showing an appreciation of 34.94%.


Meanwhile, the Euro appreciated against the US Dollar during the same 17-month period going from 1.20 to 1.390 showing an appreciation of 15.83%.


Putting it another way, it would appear that it is the deliberate weakening of the Yen that is driving the markets over the last 17 months & not Fed actions such as they are. Policy action in Yen explains most of the moves in both Euro & the US Dollar.  A word of caution is due though.  The 110 Yen to the US Dollar is a formidable overhead resistance and the wave counts favor a consolidation over the weeks ahead.  But such consolidation is likely to be well above 100 Yen to the US Dollar.





040114 USDINR



After topping at INR 68.80 on 8/28/2013, the Dollar has been correcting and has twice successfully bounced off the bottom at INR 61.  I think the correction was completed at a low of INR 60.83 on 12/09/2013 and since then the Dollar is an uptrend with a target of INR 64.


Within the uptrend to INR 64, my sense is that Dollar completed wave [a] at INR 62.48 and wave [b] at INR 61.71 and on topping 62.50 over the next few days, will head for 64 or slightly higher.


Over a longer-term horizon, I think the long-term uptrend in the USDINR remains firmly in place.  The pair’s 200 DMA lies well below at INR 60 while, the 50 DMA is at 62.12 and the Dollar closed Friday at INR 62.18, just a touch above the 50 DMA.


The Dollar may well turn down in world currency markets, especially against currencies such as the Euro and Yuan.  But as far as the USDINR market is concerned, it is decidedly in a long-term uptrend.  Don’t shade the Dollar using INR.

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It would be a disaster if Shri Modi becomes the PM, says the PM

January 3, 2014 Leave a comment

The Prime Minister in his presser categorically & forcefully made two points with regard to Shri Modi.


Firstly, that it would be a disaster if Shri Modi were to become the PM.


Secondly that Shri Modi presided over a massacre in the streets of Ahmedabad in 2002.


These were not remarks made lightly.  Through out his presser, the PM chose his words carefully, and was most animated when responding to the question on Modi.  As such, the PM’s assertion that Shri Modi presided over a massacre in Ahmedabad must be taken in all seriousness.


Serious questions hang over Shri Modi’s candidature as BJP’s nominee for the PM’s post.  Here is an incumbent Prime Minister who took office in 2004, about 2 years after the 2002 riots, and one who had every reason to familiarize himself with the circumstances surrounding those riots.  His remarks thus assume special significance; more so since he feels electing Shri Modi would be a disaster.  He has every obligation, as the incumbent PM, to prevent such a disaster and not preside over one himself.


The State should have prosecuted Shri Modi.  Instead, private citizens like the widowed Smt. Zalkia Jafri pursued cases against Shri Modi. That in itself was a monumental failure of the State.  Worse, the Gujarat government took every opportunity to obstruct justice and destroy evidence as reported in the press.  There is a widespread perception that Shri Modi was able to use the lengthy, torturous criminal justice procedures to frustrate prosecution.


We now have a statement from the Prime Minster himself, no less, that in substance supports Zaklia Jafri’s plea that Shri Modi was complicit in conniving at the massacre that took her husband’s life.  Under the circumstances, it would be in the fitness of things for Zakia Jafri to request the PM to stand witness in the Supreme Court, where she has the right to appeal, and reveal the basis for the assertion he made in his presser today.


Furthermore, the SC itself has gone to considerable length to assist Smt Zakia Jafri in having her husband’s murder investigated into.  Would it not be befitting if the Court were take suo moto notice of the PM’s assertion and invite him to explain himself in the court?


Shri Modi’s election is of great importance to the future of this country.  Shri Modi stands accused of a serious misdemeanor by the Prime Minister himself.  Would he not like to clear his name before he bids for the highest executive post in the land?  Would we not like that he so clear the miasma of doubt & suspicion that still dogs him?


Eminent lawyers should volunteer to help Smt Zakia Jafri draft her appeal to the Supreme Court and request the Prime Minister to stand witness to his statement so that justice is not only done but also seen to be done.


This is perhaps one way our system can redeem itself in the eyes of citizens who have reason to believe that the powerful are able to escape justice or frustrate it to the point of exhaustion.

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MARKET NOTES: 15th December 2013. $GLD Waiting for Capitulation.

December 15, 2013 Leave a comment

MARKET NOTES: 15th December 2013.



We are into weakly trending markets.  Commodities are approaching the end of a multi-year long drawn correction from the 2007/8 tops, and as is typical, we are seeing a great deal of short-term swings in trend that have more to do with technical positions rather than price discovery per se.  Put simply, at this stage we know where the prices are or should be but capitulation is lacking.


Once the US Dollar launches into its final bull leg from the 79 region towards 84, the appreciating currency should put a lot of pressure on commodities that will perhaps trigger the capitulation that the market needs in commodities liker gold, silver and WTI crude.


On a more personal note, I will put up the complete blog coverage in parts from next week.  This is the first part covering US Dollar & commodities.  The second part will cover equities and $INR.











151213 Gold



Clearly, Gold appears to be heading for a retest of $1180 last made on 6/28/13.


Long term support for the metal running up from the year 2001, lies in the $1200 area, and we can expect gold to thoroughly test that support and possibly violate it.


What is the probability of the 1180-1200 support being taken out is a question that needs to be addressed.  Gold hasn’t really tested this support line in the previous bull market since 7/20/2005!  What I can say is that Gold has plenty of time to test the 1180-1200 support before it rebounds towards $1400.  So the probability of a break below support at 1180-1200 is fairly high.


I would not long gold.  And it makes little sense to short it so close to a support.




151213 Silver



Silver chart is analogous to that of Gold as the metal heads to retest the lows at $18 last recorded at the end of June, 2013.  A simple wave count indicates the metal has both time and space to take out the support at $18.


First support below $18 lies at $14.  I wouldn’t look at Silver as bull until the charts show that the metal’s price has been completely broken down.  The metal’s chart may hide a long sting in its tail.




HG Copper:


151213 Copper



Copper among the metals has held up well so far.  My sense is that Copper has been moving in a relatively shallow correction from 2007 onwards after breaking into new price territory above 3.0.



That long drawn out correction could be ending over the next few months but not before Copper dips 2.80 to 3.0 area to establish the previous resistance as the new long-term floor.



Copper is in a classic terminating wave v of C.  Could have a sharp sting in the tail that takes the price below 2.80 for a short while.  I would wait patiently to long the metal.  Not much sense in playing short from current levels.




WTI Crude:

151213 WTI Crude



Crude is one hell of a chart to read.  So I am not going to try and read it for the long term as I usually do with other charts.  This one is best read as a open two-part auction.  The first part is an auction in a rising market and the second auction is set in a declining market though the price range for both auctions is more or less the same.  It is pattern or fractal that tries to discover price in a very weakly trending undecided market.



With that in mind, you have the classic A-B-C run up from 12/10/2012 to 7/22/2013 with crude running up from $86 to $108.  From there you have a corrective A-B-C down with the B ending at $98.62 on 12/12/2013.  With that simple logic, we can expect crude to test the lows at $90 to $92 area over the next few months.  What is clear is that [a] the short-term rally in crude is over and [b] we are going to trend lower towards $90.  That the trend is in line with other industrial commodities lends this interpretation some additional weight.




US Dollar:


151213 $USD


Using the Auction process logic for crude you can dissect the above DXY chary in fairly straightforward manner.  My read is that the correction to DXY from the top of 84.20 in July 2012 was completed on 10/23/2013 at 79.20. 


Since the DXY has launched into a new uptrend, the 1st minor wave of which went up from 79.20 to 81.60 in early November and we have been correcting down for this move up since then with DXY currently placed at 80.21.


I don’t think the correction is over although a good part of it has been done.  There could be a dip down to 79 region again after a day or two of rallying.  As a position trader I would accumulate the Dollar nearer to 79.50 level.  In my view the uptrend in the DXY that started on 10/25/13 from 79.2460 is very much intact and even a 100% retracement from 81.5800 made on 11/08/13 would not negate that uptrend.






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MARKET NOTES: The long rumored Dollar rally in world markets is at hand

September 1, 2013 Leave a comment

MARKET NOTES:  The long rumored Dollar rally in world markets is at hand




This blog has long held that we are likely to see a Dollar rally in world markets as QE gets squeezed out of the world monetary system.  With DXY breaking atop 82 this week, the Dollar rally is likely on.  Dollar being the world’s measuring yardstick, every other asset price will also correct in line with Dollar’s value.  We are in for a huge churn in world asset prices across the board.  Hard to say how it all fall into place but it will do so over the next 3 to 6 months.  Time to be agile with light commitments.



With the Dollar rally on, and equity markets into a correction, one has to see how markets react to prices at first support.  Volumes at the critical juncture, both ways, will determine the extent & duration of the ongoing correction.  There is little point in speculating until them though the probability of a second deeper leg is a given in Wave IV.



Back in India, the Rupee continued to correct against the Dollar.  It bears noting that $EEM, the ETF of choice for all emerging markets, has lead this current bout of correction by many months as the emerging markets were the weakest link in the chain.  Correspondingly, emerging market currencies have to some extent anticipated the Dollar rally in world markets.  So that fact should cushion the INR even as Dollar rallies from here on against major currencies like the Euro & the Yen.  But a Dollar rally beyond 85.50 on the $DXY will be a whole new game.



I would humbly repeat my suggestion to RBI that neither RBI nor GoI has the capacity to raise funds for corporates stuck with unhedged FX loan exposure.  Rather than raise false hopes just let these corporates take their writes offs with change in managements were necessary.  That is the “creative destruction” of capitalism necessary to clean out & rebalance the system & teach the stupid a sharp lessons.  It helps establish deep markets & builds a healthy respect for price signals so vital for a functioning economy.  So help clean up rather than bail out.  You will do India and the entrepreneurs themselves a lot of good.



Don’t catch falling knives or chase bear rallies no matter how enticing those 8% green blips look.  They be mouse traps.











310813 Gold






Gold closed the week at $1394.90.  Gold has been in a counter-trend rally since the low of 1179.40 in June this year.  I am rather surprised that Gold hasn’t yet rallied to test its 200 DMA which is currently in the $1520 price area.  One would have expected the metal to have sufficient bounce to at least get there if not nick it.  The metal may still try to test that area in the next week or two.  But barring such a “late” rally to $1520, Gold should now correct gently for the rally from 1180 to 1420 and possibly resume its down trend.  While the price correction from current levels may be less sharp than before, there is nothing very bullish about the metal barring a dash to the 200 DMA in order to test it.  Avoid longs & take profits.





310813 Silver





On the surface, Silver’s story is similar to that of gold.  Having made a low of $18.17, the metal has rallied to a high of $25.12 which is just a wee bit short of $26.2 where the metal’s current 200 DMA is positioned.  It may nick the 200 DMA in the next week or two.  But Silver clearly hasn’t exhausted its down trend and is due to enter Wave V of it downtrend from its recent high of $49.88.  The target of the Wave V when it unfolds would be below $14.  I would look to short the metal in the $26 price area if it gets there.  Nothing bullish about Silver never mind the chatter about commodities turning up etc.




HG Copper:

310813 Copper





Copper closed the week at 3.2240 coming off from the recent high of 3.3885 just under its 200 DMA.  Copper is likely to test the top of its previous trading range at 3.20 as the new support over the next week or two.  If the support holds, it will validate my wave count that suggests Copper may rally to 4.0 by end of next year.  However, if the support is decisively violated then Copper may go the way of Gold and Silver as well.  Not taking a position till the metal’s intentions become clearer.




WTI Crude:

310813 WTI Crude






WTI crude flared up to a high of $112.24 before falling back to close at $107.70.  Crude’s future too hangs in balance and it could go either way from here.  My preferred wave count specific to crude calls for an extension to crude’s rally from here to to the $115 to $118 price area before a correction sets in to test $105/108 as the new support for crude.  Another view that is still valid is that crude was in a counter-trend rally and has seen its current highs at $112 and is likely to move back to retest $90 price area.  My sense is that crude may continue to drift upwards even if other commodities go into the expected correction over the next two weeks.  Not bearish on crude although remain very cautious in view of the ambiguity on the charts.




US Dollar [DXY]:


310813 DXY






DXY broke atop 82 to close the week at 82.03 confirming my wave count that calls for DXY rally to 85.50 at least; though spread over a period of 8 to 12 weeks.  My sense is that DXY may rally to the 83 price area early next week before we see a meaningful correction in the currency.  However, the long term trend in the currency should be clear by now.  This could be rally that shakes up every other asset price as the QE gets worked over & squeezed out of the world monetary system.  This rally won’t be about other currencies.  It is about the fundamentals of the world’s currency itself.  And the rally may overshoot by a considerable margin.





310813 EURUSD






For the next couple of months EURUSD will be more about USD that the Euro per se.  I expect EURUSD to traverse the full length of its trading range from 1.35 to 1.20 as the DXY rally proceeds.  We may see Euro test the 1.20 level by end of September as the Dollar peaks.


EURUSD closed the week at 1.3215 down from its recent high of 1.3452.  Barring minor pull backs, expect Euro to head straight for its 200 DMA in the 1.31 price area next week.  Upon a failure to hold the line as a support [might take 2/3 attempts] the Euro’s trip to 1.20 will stand more or less confirmed.  Again, this isn’t about the Euro; its about the basic value of the Dollar.





310813 USDJPY





As with the Euro, so with the Yen.  Unless BoJ intervenes, which won’t happen until the DXY gets to an extrema in trading range, [Central Banks are getting very smart traders these days & this trend just suits BoJ fine :p] Yen will be driven by DXY.  Over the next three months, the Dollar could test 104 Yen or even higher depending on BoJ’s preferred level.


USDJPY closed the week ay 98.16.  Barring a reactive pull back to 97, I don’t really see the currency stopping for long on its way to first target at 100.50 Yen to the Dollar.  It would be interesting to see how Nikkei responds to the USDJPY developments though initial reaction may be muted.






310813 USDINR





RBI intervention by opening up a special window for oil importers caused the Dollar to correct sharply from its recent high of 68.80 to close at INR 66.55.  With a market vitiated by ad hoc trading disruptions & regulatory restrictions any meaningful analysis of price charts is impossible.  So projecting the value of the USDINR become a game of second guessing the RBI.  That’s not my aim in this blog.



That said, I had expected the USDINR pair to consolidate from 66 down to about 62 and that might well happen.   Over the longer term, assuming trading restrictions come off, I expect the $ to have an upward bias in the INR markets as DXY rallies to 85 or so.  Much of the DXY rally to 85 is already in the USDINR price.  So don’t expect a 1 to 1 correspondence with the DXY value.  On the other hand should DXY overshoot 85.50, [and I think it will,] expect another round of panic by september when the USDINR could shoot well over INR 70. So we are not done yet.



My preferred solution would be for the RBI to close the special window, pass thru crude prices fully, and let all Indian markets correct and clear together by year end so that India can start rebuilding with a fresh slate.  The accumulated poison has to be worked out of the system and over-extended corporates should be allowed to fend for themselves including such things as complete change in managements after full write offs.  It is the best way forward from the longterm point of view and will also help inculcate a healthy respect for all markets in corporate honchos and business houses.  Twenty years after reforms, many still blithely assume their problems & mistakes can be resolved by a wave of Mantri ji’s magic wand that no longer exists.  Politicians these days are as much a prisoner of markets as they were once its masters.  Learn to respect the market’s price signals.  Don’t depend on Govt. fiat.  That’s what reforms are all about, no?  The one clear message from the carnage in USDINR is that markets are working, that they are mature and rational, and that if left free to operate, they will discipline corporate big-wigs faster than any penal action by government.  Three cheers for markets having arrived in India.



Early days to turn bullish on India but the signs are all in the right direction if government/RBI will let markets do their thing and clean up the mess created by stupid business decisions.  And of course the huge fiscal deficit.




Nikkei 225:

310813 NIKKEI




Hard to see a meaningful correction in Nikkei 225 if the Dollar is heading towards 104 Yen by September end.  But correct it must.  About 68% of the price correction in Nikkei is already done and the rest should follow in due course.  At the minimum, Nikkei must retest the 12500 price area where its 200 DMA also lies currently.  Not a time to be shorting Nikkei though.  Grab every good buying opportunity to tank up on good long-term exporters from Japan.  I think the Japanese markets have bottomed out over the long-term.  The bear market from 1989 ended March 2009 and we have just seen Wave I of a new bull markets in Japanese equities.  Wave II is in progress and those with deep pockets for the longterm will be looking to buy.  Plenty of time though; no rush.





310813 DAX




No change in the prognosis for DAX from last week.  It is proceeding in the usual German methodical style towards a retest of 7650.  I think the 200 DMA on the way, now in the 7900 area, will at best provide a fleeting perch for a couple of trading sessions. To me the 7650 support is the key.  We will reexamine if there will be a second leg [or third if you count from 3rd June] to this correction depending on the way the market responds to DAX in the 7650 area.  But if my wave count is any guide, this is a Wave IV down from the full bull move up from  March 2009 and that means another leg to this correction, albeit a more shallow one, will follow.  Don’t buy the dips, not yet any way.





Nasdaq [QQQ]:

310813 $QQQ






No change in $QQQ prognosis from last week.  Still think its is headed for a retest of $69 although that may appear a bit stretched given the shallow correction in the Nasdaq so far.  However, if you look under the Nasdaq [$QQQ] hood and probe a bit you find tech stocks like IBM, MSFT, GOOG, AAPL et al which are into intermediate corrections from as early as June 2012 [that’s IBM] and these have been in reactive moves up even as Nasdaq as a whole lurched down.  The net of the two trends is a shallow correction to begin with but which will accelerate towards the end as the stocks moving up come back into sync.  Nasdaq is a very deceptive creature.  So no change in the prognosis for the shallow factor.  The index will correct to 69 or thereabouts.  Will there be a second leg?  There should be on but early to tell.  The smarter question will be about what to buy in the first leg  down when the market gets to 69.  More on that in the next two weeks 😉




NYSE Comp [$NYA]:

310813 $NYA NYSE Comp







$NYA is my preferred index to check for the gaming of both $QQQ and $SPY.  As we can see from the $NYA chart, the index is headed in an orderly fashion to 8820 price area and the 200 DMA lies currently at 9060.  The index will in all probability simply knife through the 200 DMA bring a fresh waves of selling from long-term investors.  The same holds true for $QQQ and $SPY in turn.



Will reexamine targets once the 200 DMA is taken out.  For the nonce, 8820 holds.  The 200 DMA has not been under serious threat since August 2011.  So a violation of the 200 DMA at so late a stage in the bull market could trigger some very serious selling for money that won’t return to equities.  So watch for the market’s reaction to the 200 DMA test here.




S&P 500 [$SPY]:

310813 $SPY






No change in the prognosis for $SPY from last week.  The index is on course to test the $155 area as support.  Note that in contrast to $NYA, the $SPY 200 DMA is fairly close to first support at $155 and so is unlikely to trigger longterm selling before the index gets to $155.  That in itself is a very significant technical point.  Note the same holds true for $QQQ whose 200 DMA is also close to first support.  Apparently we want a small panic but not too much of it in this correction :p



There may be a second leg to the ongoing correction but we won’t know until we see the market’s reaction to the $SPY in the 155 price area.  All I can say is don’t be in a hurry to buy the dips but shorts should take their profits.





310813 $INDY





This week I will use $INDY an ETF actively traded on the NYSE and a proxy for the NIFTY.  The same weekly chart from the previous week is shown above except that the price levels are in Dollars for the corresponding level of NIFTY.




By taking the INR out of the equation, the pattern on $INDY becomes less camouflaged and more clearer to read.  For instance the top of 6198 in June this year is much closer to the top of 6325 in December 2011 than the corresponding points $25.50 and $32.50 on the $INDY charts establishing thereby that we are in bear market that actually stretches all the way from December 2007.  It is on this basis that I have been suggesting NIFTY is into a terminating C but with a long tail that could stretch to as low as 4500 before it ends somewhere around January next year.



No change in the prognosis from last week.  We will see fairly sharp but short-lived bounces in scrips as short-covering takes hold but fresh buying is unlikely to emerge until a bottom is clearly in place and we know what the contours of the next government will look like.


A three month holiday from the day to day gyrations of NIFTY is a good idea for long-term investors.  Others should watch the $INR instead 😉  No, don’t catch falling knives.  We are still very early into the correction where defaults by corporates on FX loans outstanding have not yet been  triggered.  That will come by the 4th quarter or 1st quarter next year.



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: Uncategorized

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.














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.






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.





240813 $Euro $FXE






Not offering an opinion on EURUSD.






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.





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.





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.






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: The correction is here.

August 18, 2013 Leave a comment

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.





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.






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.





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.







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.






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.






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.






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.






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.






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.








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.


Categories: Uncategorized