Home > Uncategorized > Market Notes: 25th Dec.,2011 Markets rise to challenge overhead resistance:

Market Notes: 25th Dec.,2011 Markets rise to challenge overhead resistance:


Markets rise to challenge overhead resistance:



$-Index:  As expected in the last blog-post, the $-Index is rising to challenge its major overhead resistance at 81.  This level use to be the $ floor in the early years of the 90s and is a crucial level for the $ to test.  If broken, the $ could race past to 88 levels as has happened twice in the recent past.  The probability of such a move is low but caution is warranted since a “false” break above 81 is a near certainty.  However, any rally above 81 is not likely to last long and could fade sharply as the $ downtrend resumes back to 72 levels.  Expect volatile times ahead for the market.  It is advisable to short the $ only after it nicks and breaks below 81 again.  Until then a neutral position is advisable. A sustained break above 81 would invalidate this analysis.



Euro-USD:  The Euro behaved as expected and moved lower to test the 1.26 level against the $.  It currently stands at about 1.3 levels.  A much stronger base at 1.20 level follows the floor at 1.26.  It is unlikely to be challenged even as the negative news on the Euro continues to flood the market.  The Euro could turn up any time now as the market is oversold on the currency.  Look to long close to 1.26 levels depending on how the $-Index behaves around the 81 level.  Would not advise short positions on the Euro any more.



$-INR:   INR appears to be building a base around 52.25 before making up its mind about the future direction.  The Rupee is bearish until the beginning of March and may make its next significant move only after the Union budget.  Until then the INR may move in the 52.5 to 55.5 range.  It would be interesting to see INR’s behavior after the $-Index moves significantly above or below the 81 level.  Failure to strengthen against the buck even after it weakens below 81 would signal further INR weakness.



Gold:  Gold turned down from it significant overhead resistance of $1618 which marked the bottom of the metal’s fall from its peak at 1920.  That signals further weakness in the metal, which could see it testing the $1550 level soon.  Gold is essentially marking time before another lurch down to 1550 or even 1450.



S&P 500:  An intense short covering rally between now and the end of February cannot be ruled out.  That rally, even if led by short covering, could take the S&P to test its recent high at 1380.  I realize the case for a rally in the overall bearish scenario sounds crazy but then markets would not be markets if they weren’t contrary at times.  My case for a rally in the markets rests on the possibility that the recovery from the bottom of 670 on the S&P 500 that started in March 2009 is not complete in terms of time and distance.  The internal structure of the wave up suggests that the recent move down from 1370 to 1075 was just a sharp wave 4 correction before a short covering led short 5 up.  The markets face a long period of consolidation in the years 2012 and beyond as the economies repair themselves.  Considering the bearish sentiment and oversold markets, consolidation can’t happen without the shorts being shaken out of the market.  All considered, I would stick my neck out and argue for a modest rally to 1380 levels in the first quarter next year.  Note this is not the same thing as being long term bullish on markets.  The 1260 level on the S&P 500 is not only the 200 DMA region but also a very important pivot that could swing sentiment.



Shanghai Composite:  Shanghai Composite Index continues to hammer away at the 2180 point.  Chinese markets are prone to slight excesses at crucial turning points and the behavior at 2180 is true to form.  If the SC Index rallies from 2180, it will be the strongest signal for a first quarter rally in world equity markets.  On the other hand, a breach of 2180 would invalidate my case for a rally.  The Shanghai Composite Index is worth watching like a hawk, more so because of all the world equity indices, it has been the “best behaved” in the correction following the 2007 crash.  In term of timing, a rally, even if only short covering, is past due date and could happen any day now. Wouldn’t advise bearish positions in the Chinese markets at current levels.



Sensex:  The Sensex is likely to mirror the moves in S&P 500 and the Shanghai Composite.  The market is due for a short covering led rally and that could happen at any time now.  Indian equity markets have had a much shallower correction than the rest of the world indices including the Shanghai Composite.  That could spell turbulence ahead.  The sequence of lower lows on the Sensex makes one pause for thought.  May be the next sharp rally up will reveal the market structure and direction better.  Cover the shorts first opportunity.



WTI Crude:  WTI Crude continues to head towards the $90 level in a short term from recent high of 102.  Failure to breach the 90 levels significantly will see it heading higher.  Crude simply fails to confirm the demand destruction that would result from a deflation in EU and or the US.  Crude now also reflects the fact that there are no easy replacements for the fossil fuel for most countries, while the in US need for imports, and hence the incentive to hold down prices, is rapidly diminishing.  US geostrategic interests from now would be sufficiently served by controlling access to the crude and its price rather than beating it down.  The oil game is undergoing some very profound changes wherein the US may now be on the same side as OPEC and Russia in managing the worlds oil supplies.  Interesting days are ahead.


Categories: Uncategorized
  1. ShankkarAiyar
    December 25, 2011 at 4:26 am

    Good prognosis. I do think though that Euro is yet to play out and therefore calculus of xchange rate risk om stock markets is a known unknown

  2. indiaundersiege
    January 2, 2012 at 8:46 pm

    childish article at best. if you think your thoughts are so perfect about rooting out corruption, till today i haven’t seen or heard you making any protest to root it out. stay indoors w/ your a/c on and be happy that you have a keyboard to type away.

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