Archive for February, 2012

MARKET NOTES: The upside to most major markets is firmly capped from here.

February 11, 2012 Leave a comment


MARKET NOTES:  The upside to most major markets is firmly capped from here.



Gold:  I appear have angered quite a few firangi gold salesmen who have thrived on selling useless and deflationary gold trinkets to the naïve natives in return for real money and jobs in their home countries.  A couple of them have even tried bullying me on twitter and by email.  Nevertheless, I have bad news for gold bugs.


To my mind, Gold commenced its decline from the top $1902 on 6th September 2011, and completed the first leg of its fall on 29th December 2011 at the price point of $1546.  Since then, gold has been in a corrective move up and likely topped out at $1760 on 2nd February 2012.  It has made a series of lower tops and bottoms since then and currently stands at $1719.  The top at $1760 is the third lower top since Gold commenced its downtrend.  There is little doubt that gold is in a bearish phase and one would be foolish to buy into the metal until there is clear evidence that the bearish trend has been reversed.


The angst of the gold salesmen at my blog is understandable.  But I maintain my view that Gold is in a long-term downtrend and the current phase of the decline will likely take the price to the $1550 region or even below it by the middle of March 2012.


Note the Rupee price of Gold in India is a function of the international price, taxes and the exchange value of the Rupee.  Rupee depreciation partly masks the actual decline in the price of the metal in international markets but will not be sufficient to make up for it in Rupee terms except for very short transient periods.  Gold is a very dumb investment in a bear market.


I have blogged on the deflationary impact of India’s gold imports over the last 3 years.  To recap the argument, in just 2011, India imported about 1000 MTs of gold valued at $65 billion.  This amount of money, taken out of the system should be compared to the fiscal deficit of the Government, which would be about 5.6% of the GDP or roughly $78.4 billion.  In effect Government’s fiscal deficit contracted from about $60 odd billion dollars in 2110 to a surplus of $5 billion in 2011.  Is there any wonder than that economy has tanked, manufacturing growth is down to 2% and corporate profitability has collapsed in a wide range of blue chips?  As I have said many times, our gold fetish is socially ruinous for India.  More is the pity that we are helpless to shed it.



To firangi gold salesmen, we are like the busy bees that work ceaselessly to collect honey in a hive until they arrive to take it away by selling us a useless piece of metal.  Why would they not be angry to see a blog speak against gold?


Mind my bearishness in Gold isn’t a matter of ideology. It is simply a reading of the market.



$-Index:  As my last post suggested, the $ continues to be in a downtrend after confirming a break below 79.5.  Despite the sharp spike up from 78.4 to 78.65 yesterday, I maintain my bearish view that the $ next logical target on the $-Index is 78, followed by a more substantial floor at 76.5.  It won’t be a one-way fall but the downtrend is clear enough.  And no, $ bearishness doesn’t imply gold bullishness unless we see evidence of that correlation in the charts or the marketplace.



Euro-$:  The Euro has been in an uptrend from its recent low 1.26, a floor that was correctly predicted by this blog firangis may note.  It made a recent top at 1.3320, which is a minor overhead resistance, followed by a major overhead at 1.3550.  The sharp correction down to 1.31730 on Friday does not negate the uptrend in the Euro.  It could just be an orderly correction before the Euro heads to the 1.35 area.  Despite the negative flow of news from Greece on Friday, nothing on the charts suggests a break down in the Euro.  That view is consistent with $ bearishness.



$-INR:  As blogged in the last post, the $ promptly reversed course from the anticipated floor of 48.5 to the Indian Rupee and resumed its upward journey.  What was significant in the reversal is the fact that the previous top of 48 that has held since 2002 is now confirmed as a long-term floor for the Rupee.  It should hold for a long time to come.  We aren’t going to return to sub-48 level for the $ in a hurry.


The journey back to 54 levels will be more orderly this time with many corrections like the one on Friday on the way.  But to my mind, the next target for the Rupee is 51 followed by a major overhead resistance at 54.  It would be a pity if RBI persists with its curbs on forward trading in the $ to limit the depreciation in the Indian currency.  The curbs are self-defeating in the long term.




Russel 2000:  As expected by this blog, Russel 2000 has turned at its first overhead resistance in the 835 area.  It is significant that 835 marks the upper end of the downward sloping channel from its top at 868 on 29th April last year.  On the other hand, the fall from 835 to 813 has only filled the gap in the up move and doesn’t confirm a trend reversal so far.  So the index could linger here for a while but its upside is firmly capped at 860.  Hence there isn’t all that much to gain by entering the market now.  A clear break out above 860 would completely change the picture but hard to see that happening.




S&P 500:  The index achieved its predicted target at 1350.  Firangis may not this was predicted by my blog weeks before the fact when they were bearish.  Not surprising therefore that it has turned from the resistance at 1350.  In terms of time, the index can mark time in the 1350 area for a one or two weeks more but its upside appears capped at 1370.  A break out above 1370 might necessitate a fresh look at the markets.  But the rally is now old, mature and oscillators indicate tiredness.  Hence the probability of a break above 1370 is miniscule.  Entry into the market at this stage is strictly for suckers.



NASDAQ:  Including this index for the first time because it presents some interesting insights into how this bear rally may top out given Apple’s rather large weightage in the market and the distribution strategy of bulls.  From the last major low of 1244 to all time peak of 5147, the point at 3195 marks the 50% retracement level.  On the charts, the NASDAQ has a significant resistance at 3051 followed by a more substantial resistance in the 3200 area.


In short, while Russel 2000 and S&P 500 have immediate obvious caps on the charts, NASDAQ has room for room for a further rally after clearing the top at 2864 with gap and a breakout.  That is a good 7% further possible rally on the index from current level.  Very unlikely that bulls will forego that “opportunity” to distribute some tech stocks.  You have been warned.



Shanghai Composite:  The only market on which I am bullish is the Chinese market.  Despite all odds, this blog called the bottom correctly at 2110 on the index and has since been consistently bullish.


The index continues it steady orderly climb upwards just as you would expect at the beginning of a solid rally.  The Index had its first major overhead resistance at 2323 as indicated in the last post.  That resistance was pierced rather convincingly in the past week conforming the onset of a sustainable rally whose next logical target is now 2540, about 8% away from current levels.  Continue to be bullish on the Index.


One must wonder though how the index will react if the world markets turn down as I anticipate.  As noted in my last blog post, there are good reasons to believe that the Chinese market will ebb & flow with world markets but still maintain its upward bias.



Sensex:  The Sensex rally has stalled just under its major overhead resistance at 18,000.  Hard to see the index going anywhere but down from here although it might linger here if the NASDAQ shows an inclination to spurt for the 3050 area.  Entry at this point in markets would be foolhardy unless world markets clearly break out over their major tops.  Better to take profits and wait for the breakout to buy back rather than get stuck.



Copper and Oil showed no pulse.  The view remains unchanged from the last blog post.




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 decision.
















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Shrinking space for moderate Muslim opinion

February 8, 2012 3 comments


Two recent incidents of censorship help etch out how our freedoms are being circumscribed by private vigilantism because the Indian state is unwilling or unable to exert itself to enforce its writ. In both cases, the state took the easy way out, avoiding confrontation with aggressive hardliners. In the process of such acquiescence to the extremists, the state let down moderate opinion that supports the state’s own avowed position. The state either takes moderate opinion for granted or it is admitting its inability to protect moderate space against extremist onslaught. Either way, the space for moderate opinion that actually holds India together is shrinking. Can the state afford to assume that the moderates will thrive, and strive, to hold the centre even as the state cedes space to the extremists and abdicates its responsibility for upholding the law?
A brief recap of the two incidents might help clarify what is at stake here. I shall give political correctness a miss here because I think the issue is important enough to merit a frank examination without being bogged down by inane euphemisms.

In the first instance, Salman Rushdie was prevented from attending the Jaipur Literary Festival (JLF) under spurious pretexts following objections raised by a few Deobandi clerics to his book (The Satanic Verses) and views. The state went to extraordinary lengths to keep up the pretence of not being involved in the decision taken to keep Rushdie out even as it changed its story and trotted out one excuse after another for shirking its duty to uphold the law. The message was loud and clear. The state had no stomach for confrontation with the extremist opinion in order to defend the rights of even an iconic figure like the author, the law be damned. What then of the moderates like us who often speak up against the extremists in order to support the state against them? Did the state owe us nothing?
But an even more insidious and corrosive process was at play in the discourse and this relates to Muslim moderate opinion within the Muslim community. Make no mistake, the opinion on Salman Rushdie’s participation at the JLF was sharply polarised along communal lines. The Hindutva brigade was baying for him to be allowed to attend and speak more in order to embarrass the Muslims than to hear the author per se. Moderate Hindus wanted him to do so as well albeit for a different set of reasons. What of the moderate Muslims, of which there were many? Some such as Javed Akhtar defended the author’s right to participate and voice his opinion. Others on Twitter upheld the author’s right to attend even if some of them did not agree with what he had written. But crucially, what was the state’s message to the moderate Muslims? Sadly, it is these very people, who are so crucial — nay critical — to sustaining our secular ethos that felt let down by the state and the media. What is worse is that they stood diminished within the Muslim community as gullible people who had bought the official narrative naively but discovered that the state had no intention of standing by it. Will their numbers not shrink and those of the extremists grow? Is that what we need?
The second episode relates to screening of Sanjay Kak’s documentary ‘Jashn-e-Azadi’ on the violence in Kashmir whose screening was stopped and a whole seminar cancelled at the Symbiosis University in Pune. In this case the vigilantes were the Hindutva brigades led by its student wing. The story is the same as that of the Deobandi clerics against Salman Rushdie. A handful of zealots object, and the state shies away from confronting them instead of upholding the law and protecting the right of a university to discuss whatever it wants to openly without interference on its campus. Once again, sad to say, the opinion on the issue was polarised along communal lines. The Hindutva brigade pulled out its own narrow version of ‘national interest’ claiming that the documentary promoted ‘separatism’. Muslim opinion was that once again it felt that the majority did not care to hear what they had to say. Be that as it may, I would rather focus on the moderate Muslims who had supported Salman Rushdie’s right to speak at JLF. What did they think of the Sanjay Kak episode, and more importantly, what did they take away from it?
The reaction of moderate Muslims ranged from the cynical to extreme hurt. The same insidious corrosive process was at work again. Only the penetration was deeper. Firstly, there was the grouse against the state for not upholding the university’s academic freedom. But more important was the anger at being let down by moderate Hindus, many of whom were supportive of the university’s right to screen the film even as they were reluctant to entertain the separatist narrative. The point here is not the validity of Sanjay Kak’s depiction of Kashmir. That is beside the point. What should concern us is the sense of being let down not only by the state but also by fellow moderates from the Hindu community. In short, the narrative appeared to be, “We defy our extremists to support you but you will not defy your extremists to support us.” Again this formulation is not exhaustive. But there is no denying that the bond between the moderates on both sides of the communal divide had frayed a bit more.
Blessed as we are with a clueless leadership at the top, the problem of shrinking space for moderates within the Muslim community needs to be addressed in one way or the other without depending on the state. We could start by making them more visible in the media and by recognising them as common community leaders in their own right rather than have the clerics voice their outlandish opinions from TV studios. As Barkha Dutt’s interview with Rushdie showed, such initiatives do not require government intervention or permission and can be done by the media itself. Secondly, we need to avoid stereotyping. Our discourse needs to get more nuanced to make space for more opinion, more people. For instance, you could actually denounce Salman Rushdie as caricaturing a religion and still uphold his right to express his opinion. Likewise, you may not agree with the victimhood narrative that the Kashmiri Muslims push at you but why should that prevent us from also looking at the ‘war’ there with their eyes and sensitivities, at least as a way of gauging their feelings on the issue?

In a plural society like ours, it is for the majority community to make space for the minority opinion. The state, politicians and the media have reduced this obligation to tokenism. In the name of getting a contrary opinion, they bring in the extremists from the right tail of a normal distribution curve rather than an individual who is closer to the median. This shuts out the moderates from leadership positions, perpetuating a vicious cycle. It is time we looked deeper into both communities and help its true leaders come forward to lead, whether they conform to our preconceived template or not. Moderates from the two major communities must be enabled to converse and evolve a discourse that helps heal wounds inflicted by extremists. Absent a proactive state, the initiative must come from a concerned media and civil society.


The writer is a trader. She can be reached at or @SonaliRanade on Twitter

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MARKET NOTES: We are very close to a bear rally top

February 5, 2012 2 comments

MARKET NOTES:  We are very close to a bear rally market top.


Bear market rally tops are extremely difficult to call out as they are driven by short covering.  They generally tend to overshoot logical targets especially towards the fag end of a long correction.  Nevertheless, nothing has occurred in the market since the last blog post to suggest that [a] we are not in a bear rally and [b] that the markets are not likely to top out at around these levels.


Russel 2000:  This index represent a wide range of mid-cap stocks in the US equity markets and is in many ways the key to understanding the bull in this bull market.  First, the index topped off at 855 on 7th July 2007, at the top of the last bull markets.  It crashed from those levels to 343 in March 2009.  But here is the surprise.  In the subsequent rally bear rally from the lows of 2009, it made a new top at 862 on 29th April 2011, higher than the bull market rally top in 2007!  That tells you of the volatility in this index and the underlying mid-cap stocks.  After the head fake in April 2011, the index made a low of 610 and has since rallied to 833 this week.  The last blog post had indicated that the Russel 2000 would break through the 800 levels.  Technically, there is nothing to stop the index from going right up to 860 levels again.  The index could linger here for a week or more as it distributes.  However it is over-bought and has significant gaps on the way up that suggest exhaustion.  A reversal in this index will be the first confirmation that the bear rally is over.  Incidentally, The Russel 2000 will be making a triple top at 860 if it manages to rally up to that level.


S&P 500:  The index has a formidable overhead resistance at 1350 followed by the previous top of this rally at 1370.  The index is not terribly over-bought which suggest room for further rally from its current level at 1326.  A rally beyond 1370 is highly unlikely.  Time wise, the index can continue in this range for another week or two but remember bear rallies are fickle and terminate abruptly.  Advocate caution for those playing bulls.  Same caution applies to early bears.  You feed the bulls!


Shanghai Composite:  The Chinese market continued an orderly climb up from its recent bottom at 2130.  Significantly, the market closed the Friday session at 2330.4 a touch above its major overhead resistance at 2323 that would confirm a shy at the next logical target at 2550.  Remain cautiously bullish on the Chinese market.  Pertinent to note that while Chinese stocks have not ignored the ebb and flow of world equity markets, they nevertheless ploughed a very orderly correction down from the 2007 top defying the shenanigan in the US.  That gives grounds to hope that they continue to climb despite the anticipated correction in US equity markets.  To early to say if China and US equity markets have delinked but the current posture – one at the top, the other at the bottom of their respective trading ranges – suggests such a possibility.  Time will tell.  Maintain bullish posture on China barring the usual correction.


Sensex:  The index runs into the upper end of the downward trending channel at 17,650, which is its first overhead resistance from current levels.  A breach of the same this late in a ongoing bear correction would not be surprising.  Beyond that major overhead exists at 18,000.  While the Sensex may linger here in sympathy with Russel 2000 and the S&P 500, there is nothing to indicate that the bear move down has been exhausted in terms of wave counts and time.  On the short-term oscillators, the index is highly over bought and due for a correction.  Worth repeating the caution that bear rallies are sharp, unpredictable but can terminate abruptly.  Highly dangerous to play them from the bull side and early bears can get mauled.


$-Index:  The $ fell through the first major support at 79.5 from the recent top at 82.  It has since tried to rally past 79.5 but failed to do so.  The next logical target for the $-Index is 78.  A break of 79.5 has confirmed the earlier prognosis that 82 was a bear rally top and we are now headed for a longish correction on the $ all the way to 72.  Should that happen, all the traditional correlation between $ and equity, commodity markets will be called into question.  Interesting times are ahead for traders.


Euro-$:  The Euro has been banging at its overhead resistance at 1.32 but without success so far.  Recall, Euro made a recent top at 1.495 in May last year and has been on the way down since then.  The structure of the waves down suggest the fall was terminated at 1.266 in January this year and the Euro is now headed into a bull run back to 1.5 levels.  Its first major overhead resistance was at 1.32, where it has been stuck for a while.  To me this suggests a coiling up for an explosive move up or down.  The balance of probabilities suggests a sharp move up once the Euro breaks the 1.32 barrier.  Stay tuned to this explosive move cause it will change major equations in the currency markets.


$-INR:  The $ is grossly oversold against the Indian Rupee.  On short term stochastic alone one would expect a sharp rally in the $ against INR.  RBI has placed draconian restrictions on forward cover to prop up the Rupee, which are distorting the true market.  There is little validity to the current Rupee value.  Expect a sharp rally in the $ as RBI removes trading curbs on the India forex markets.


Gold:   Gold turned sharply down from $1760.  Technically there is nothing to stop Gold from rallying right up to $1800 especially as the oscillators don’t signal it is over-bought.  However, I remain bearish on Gold in the medium term and don’t expect a rally past $1800 in this rally.  A word of caution is due though.  As indicated in the discussion on the $, a lot of traditionally accepted correlations in the equity and asset markets are undergoing a churn.  Gold will not be exempt if the $ turns down.  However, nothing on the charts suggests Gold bullishness at this point.


NYMEX Crude:  Crude turned up from close to 95 and currently stands at $97.8.  Crude has a major overhead resistance at 103.5 and could head for that level in the coming days.  Interesting things could happen in crude once it breaks past that level.  Too early to say if the pattern unfolding on the charts indicates a blow out rally past $115.  Watch the $103.5 level carefully for further developments in the oil market.  Crude appears oversold but not by all that much.


Copper:   Copper appears to making another shy at the 4.0 price level which is its major overhead resistance.  A break past 4.0 would confirm the bullish prognosis for the Chinese equity market that the Shanghai Composite index suggests.



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 decision.

Categories: Uncategorized