Home > Uncategorized > Market Notes 31st Aug., 2011

Market Notes 31st Aug., 2011



Nikkei started its run to the bottom in December 1989 from a high of 38,882.  It made its first low of 14,300 in June, 1995 after a full five part impulse wave down.  This low failed to pierce an earlier low at more or less the same level in 1992 after which, the Nikkei tried to rally meeting with a resistance at 23,000 which it has never pierced since. Wave III of the down move on the Nikkei starting June, 1996 made a lower low at 7,500 in May 2003 before rallying to lower high of 17,300 in April, 2006. Wave V, the last of the impulse waves down, commenced in Mid February, 2007 from a level of 18,200 and continues.  Wave 3 of the last wave down, made a new low of 6940 in October 2008 which has been tested 2 times since in wave 5 of Wave V and in those tests Nikkei held well above 6940.  The last major low, in the 9,500 area was in March this year which is currently being retested.

Taking into account the wave count over the last 24 years of correction, the probability of the 9,500 area being breached is pretty low. While Nikkei hasn’t made new highs as the world markets peaked in 2008, its ebb and flow has been fairly well correlated to that of the rest of the world markets.  Nikkei is one major index that gives signals a bottom formation in equity markets may not be too far off.  On the Nikkei itself, some sort of a confirmation of this should be in evidence by end of September this year.


Dollar Index:

The Dollar Index slide was examined in notes of 8/17 here https://sonaliranade.wordpress.com/2011/08/18/market-notes-8172011/  .  The index is currently testing the last low 72.85 made in April this year.  Nothing in the market action, including the near certainty of QE3, has induced the $ to make a lower low against its trading partners so far.  A breach looks unlikely and the prognosis in the medium term of 6 months to a year remains the same.  Note, this upward bias in the $ is against its trading partners.  It doesn’t mean the $, together with the currencies of its trading partners, will not depreciate against gold or a clutch of other physical commodities.  Dollar debasement can well continue even as the currency trends upwards against its trading partners.



HG Copper is interestingly poised in the 4.23 area, having rallied as expected.  This area on the long term chart is the “break out” level beyond which much higher highs for the metal are possible. Despite a margin squeeze on bulls by the Chinese Govt., the metal has held firm.  A break out in the near term is unlikely.  That typically takes to 3 or 4 attempts.  But the metal shows little indication of the weakness that one would expect in the prevailing doom and gloom evident in equity markets.



CBT Corn has been in a major bull market from November, 2005 starting from a level of 188 [5000 Bushels contract.]  It is currently testing its all time high area of 760 and is well positioned for a break out.  Chinese appetite for corn to feed pigs is relentless.  That the price has held high despite a weakness in crude prices points to tightness in the underlying physical market. On a break out, corn prices can go anywhere on the charts.  Again, that is not likely to happen at the next attempt to take out the previous top.  A breakout could take time but the trend remains bullish.


S&P 500:

The 1150 area on the S&P 500 represents the mid-way point between the low and high on the index for the last 20 years of the last bull markets.  Interesting then, that the Index is moving back and forth around this level indicating the bulls and bears are evenly matched at the mid-point.  By my reckoning, S&P500 is in the middle of its Wave 3 down that started in April, and is likely to come back to retest the recent low 1100 at least a couple of times between now and March 2012.  The bear rallies from 1100 could be sharp.  But the main trend on the index continues to be bearish.


Shanghai Composite:

The prognosis on the Shanghai Composite remains the same.  It is in a down trend that appears destined to retest the recent lows around 2300-2350 levels sometime before the end of November. Two interesting things stand out.  Firstly the index broke its long term trend line running up from 1990 in August this year. Significantly that comes at the fag end of a multi-year bear market; a sort of last hurrah by the bears.  Secondly, there is a sort of triangle between this long term trend line and one dropped from the top of the last bull market.  With the breach of the lower trend line, prices have fallen out of this triangle.  That smells of a typical bear trap.  All in all, the Shanghai Composite is nearing a bottom around 2300 end November.



Moves on the Sensex conform to what was detailed in the notes https://sonaliranade.wordpress.com/2011/08/18/market-notes-8172011/ .  By my wave count we are currently in the sub-wave 4 up of the impulse wave down from 20,600 starting April this year.  The index should come back to retest 15,500 area once again but Wave5s are prone to failure frequently.  I would be looking at individual blue-chips and prices at which to buy them between now and mid-November.  Not all stocks bottom at the same time.  Some would have bottomed out already.  Tough to call a bottom so the maneuver is not without some downside risk.  However, many investors miss the bus by waiting for the lows to be repeated.  Markets these days don’t give a second opportunity to buy or sell.

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
  1. September 2, 2011 at 4:05 am

    good thoughts. I would total all the thoughts and trending weakness and add policy paralysis across the geo-political globe to buy at every fall of the Sensex — to about 14,000 (nearabouts to what I call the UTI double bottom).

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