Home > Uncategorized > MARKET NOTES: The time is up for this rally in risk assets.

MARKET NOTES: The time is up for this rally in risk assets.


MARKET NOTES:  The time is up for this rally in risk assets.


S&P 500:  My target for the current rally in US equities was 1370, noted in my blog weeks back when markets were very bearish and the thought of a rally unthinkable.  Using the same wave count that led me to predict this rally, the time for this rally to peak runs out on 28th February, give it a few days here or there.  With the price target achieved, and time factor supporting the view that 1370 overhead resistance will be difficult to breach in a meaningful way, I have to conclude this rally is pretty much over.  A correction in the indices is due any day now.  The correction could be relatively flat.  The nature of the correction that unfolds will tell us if we are in a new bull market for risk assets or if the bear market continues.  Either way, best to be prepared for a fairly long, if flat, correction in values.



Gold:  Cash gold is currently priced at $1779.  It has a major overhead resistance at $1800, a breach of which would invalidate my preferred wave count that holds that the $1798 high on 7th November was beginning of wave2.  Considering that gold has been correlated positively with risk assets of late, the metal’s sharp rally in line with equities and oil, is not surprising.  Hence, I continue to bearish on the metal, the sharp rally notwithstanding and will revisit my wave count if the resistance at $1800 is meaningfully breached.



Silver:   I normally do not bring in Silver into my analysis because the metal is too volatile for a position trader like me who initiates a trade with a change in intermediate trend and ends the trade also with a change in that trend- a strategy that minimizes transactions, costs, and beats the traps professionals lay for day traders.


Silver is strongly positively correlated with gold.  So the silver chart is a good place to look for CONFIRMATION of my wave counts for gold.  A look at the Silver chart is very educative.


Silver made a top at $49.5 on 28th April last year a few months before gold similarly topped out in August.  Silver made a low of $26 on 26th September and again on 29th December from where it has rallied to $35.75.  Despite the screaming headlines of a breakout, there is no such thing on the charts.  On the trend line connecting the previous two tops Silver would have to rally to $37 for a break out.  To be on the same footing as gold, when gold breaches $1800, Silver would have to rally to $43.5, a price clearly out of the question at the present juncture.


Going by the structure of the chart formation & the current price of Silver at $35.37 I would conclude that the Silver price behavior confirms my bearish read on gold.



NYMEX Crude:  Crude is currently priced at $108.66 having decisively pierced through its major resistance at $104.20.  The next logical target for crude is $115.  [The corresponding Brent crude price at that level would be $135!]  Going by my wave counts, Crude prices could remain elevated till the first week of April.  So crude has more time to rally than other risk assets.


With geopolitical risks driving crude prices, it is hazardous to say where crude will go.  But going purely by technicals, the long-term bearish trend in crude will be negated on a decisive breach of $115.  That probability can’t be ruled out.  An alternate wave count that I don’t favor, but which would be validated on a breach of $115, says crude could be as high as the previous top of $148 by end of June this year.  To repeat, I don’t favor the latter wave count right now.  But a breach of $115 decisively, would bring that wave count into play.


What crude at $148 would do to equity markets is a no brainer, especially for India.



Sensex:  Sensex has a major overhead resistance at 19,000 followed by more over-head at multiple levels.  On the charts, the Sensex has room to make a bid for this level in terms of time.  This index normally doesn’t descend without multiple bids at establishing a top.  So despite the correction over the last few days a renewed bid at 19,000 cannot be ruled out.  Having said that, am not very bullish on the Indian market never mind the much-touted FII inflows.


Telecom stocks in the Indian market have completed a long 3-year correction.  While they could dip with the broad correction in the markets, their downside is limited.  These stocks would be worth accumulating in any fall.  I would however stick to market leaders and blue chips only.



$-Index:  The $ continues in a tame downtrend from its recent top at 82 and is currently positioned at 78.5 after a correction for the first leg of the fall from the top.  Effectively, the $ is now in wave3 down move with first logical target at 76.5.  It will not be a straight fall but the direction appears clear enough.  A fall below 78 will confirm violation of the upward sloping trend line from the bottom 73.77, end August 2011 accelerating the fall.




Euro-$:  I have been a Euro bull from its recent bottom at 1.26250 despite all the Greek drama played out in the markets.  The Euro crossed its first major overhead at 1.335 with a flourish and is currently positioned at 1.3450.  The Euro has no significant resistances from it current level and 1.370.  On the other hand a clear break above 1.370 will signal a major change in the main trend for Euro from bearish to bullish bring in more support.  There is little to stop the Euro from 1.370 level barring the usual corrections.  A short squeeze could further accelerate the Euro’s rise.  Considering how negative sentiment has been, that is very much on the cards.




$-INR:  The $ having turned up against the INR from its recent bottom at 48.6, rallied to its major overhead resistance at 49.75 and is currently correcting for that move.  It closed at 49 last Friday.  On crossing the first overhead resistance at 49.75 INR is likely to head for 52 level.  My wave counts indicate $ is in a well established bull run from its bottom of 44 in August 2011 and may be looking at 54-56 range before the end of May.  Watch for a break out above 49.75.




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. February 25, 2012 at 6:45 am

    Thanks for your bold & insightful analysis of equities & commodities.
    BTW , you had promised to insert charts with wave lables and trendlines to make the blog more professional and educative.
    Regards and Best Wishes.

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