Home > Uncategorized > MARKET NOTES: Have the markets turned down already?

MARKET NOTES: Have the markets turned down already?

MARKET NOTES:  Have the markets turned down already?




S&P 500:  World equity markets have had a long Bull Run spanning from the lows 668 on the S&P 500 in March 2009 to 1374 on the same index in March 1012.  That’s a bull run spanning 3 years – typical length of period – nearly doubling the index during the run.  By all accounts this Bull Run is now mature and due for a correction for the run-up in the index from 688 to 1370.


This bull run was driven by unprecedented liquidity – indeed virtually unlimited liquidity at practically zero interest rates – as the FED and other central banks literally printed money to kick start economies that had stalled after the crash of 2007.  That phase in excessive liquidity may be coming to an end soon as growth has picked up in the US, inflation is beginning to rear up its head and the interest rate cycle begins to perk up.  ECB’s LTRO 2.0 could be the last of the major liquidity injections that we see in the world economic system.


The markets are untested without this unprecedented liquidity sloshing around in the system and nobody has any idea as to what the valuations would look like in the world markets without it.  The market needs to find a level that reflects true value in the absence of steroids injected into the system by central banks.  The ensuing correction will be all about finding that true comfortable zone of value.


Having said that, it is too early to confirm if such a correction is setting in.  For that to happen, S& P 500 has to close below 1250 and we are a long way from there.  On the other hand, Russel 2000, which represents a broader universe of stocks, has fallen from a high of 834 achieved on 2nd February this year to a low of 800 on 2nd March 2012.  In other words, it hasn’t made a new high for almost a month while the more avidly watched narrow indices have been inching up.  The pattern of correction in the Russell 2000 looks like that of an impulse wave down and the index may be signaling a broad correction much earlier than the S&P 500 or the DOW.



At the very least, the divergence between Russell 2000 and the other two indices set up cautionary flags for an imminent correction.  While I expect a long drawn flattish correction for reasons given above, it is too early to say what shape it will take.  So watch out for the US equity markets to confirm a correction without further notice.




$-Index:  The $-Index continues to be bearish declining from its recent top at 82 in January to its recent low at 78.1 on 29th February.  It has since spiked up to 79.5 in what looks like a corrective move and will probably resume its orderly descent soon.  Its next logical target on the downside is 76.5.  Not bullish on the $ despite being bearish on US equities!  That’s is almost blasphemy but correlations have been all tops-turvy in these markets.  Expect the disarray to continue!




Euro-$:  Will stick my neck out and reaffirm that I continue to be bullish on the Euro.  The currency has been in an uptrend from the low of 1.26 and recently made a high of 1.3471 on 28th February.  It has since fallen off sharply, correcting to a low of 1.3200 yesterday.  The fall, in my view, is corrective and the Euro will resume its uptrend against the $ soon if not from Monday.




Gold:  As expected in my last blog post, the $ failed to break past the $1800 level confirming that the bearish trend in the metal is not yet over.  The sharp fall from $1790 to $1688 in fact confirms that there is considerably more time and price correction in the metal to come.  Gold’s next logical target on the downside is $1540.  The fall may come along with the fall in US equity markets.


Since gold has off late been positively correlated with equity markets, the sharp sell off in the metal should be seen as yet another dangerous divergence in the asset markets.




WTI Crude:  Crude continues to be in an uptrend that began $75 on 24th January this year and currently stands at $106.7.  Nothing on the charts says the uptrend is over.  On the other hand, the wave counts indicate another leg up to the rally that could take the price to $115 and above.  While I don’t buy peak oil theories, crude has had a huge Iran premium in the price and anything is possible.  Pure technicals say crude won’t be turning down with other commodities in this fall.  That’s bearish for all markets in fact.




Silver:  I used Silver to illustrate why the rally in gold prices was deceptive in last blog post.  So to be fair, revisiting the chart although I don’t trade the metal, as it is too volatile for my risk appetite.  Silver in my view has completed a full bull run from 1991 to August 2011.  It topped out at 50 and has been in a downtrend since then.  Silver is actually in the middle of a corrective pull back.  It recently topped out at 37.5 as a part of the first leg of the pull back.  A break of 34 will accelerate the fall.  It remains to be seen if during this fall it will go all the way to $26.  That will provide a clue to the future course of correction in the metal.  Continue to be bearish.




Shanghai Composite:  The only Index that I am currently bullish on had a logical target of 2540 for the current rally but it is languishing at 2430.  The Index charts a fairly independent course from world markets and may still surprise although it ebbs and flows with world sentiments.  However, until it actually tops out 2540, it would be foolhardy to discount the possibility of a fall in sympathy with the rest of the markets.




Sensex:   Sensex presents an interesting picture.  First point to note is that having turned down from 18,500 the Sensex confirmed that the correction in the index that began in November 2010 is not yet done.  So the index continues to be in a downtrend.  Second point to note is that in terms of wave counts, the run up from its recent low 15,000 is not yet over.  In short the Sensex has time to rally one more time if it wants to.  Lastly, Sensex fell before the rest of the world markets.  That was quite “unnecessary” unless somebody had a bull AND a bear trap in mind.  Such is the deviousness of our market operators.  Recall I said earlier that Sensex doesn’t usually fall away without multiple attempts at forming a top.


So while I am by no means bullish on the Sensex, a rally from current levels back to 18,500 cannot be ruled out to trap bears.  There is both the time and the place for such a rally.  Having said that, I continue to be bearish on the Indian market well into rest of this year.




$-INR: The $ appreciated sharply following the ONGC debacle.  Since LIC will pay for ONGC in INR there is more room to go!  The $ is an uptrend against INR with first logical target 49.75.  A break past that level will take the $ 50.5 or so.  Equity markets have been propping up INR.  That prop is likely to slip away after the ONGC debacle and as correction in equity markets begins to bite deeper.


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.



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