Home > Uncategorized > MARKET NOTES: The Bull Run ends but a new high in US markets still possible.

MARKET NOTES: The Bull Run ends but a new high in US markets still possible.

MARKET NOTES:  The Bull Run ends but a new high in US markets still possible.



S&P 500:  The Bull Run that began at 667 on the S&P 500 in March 2009 probably ended on 1st March 2012 at the level of 1376.  The Bull Run spanned a period of 3 years and saw a rise of almost 105% from the low.


The ensuing correction saw the index fall from a high of 1376 to 1340 before a pullback to 1366.  This pull back can make a new high.  Even so, that would be an extension of the run in order to make room for a fall.  One may note that there are major divergences between the broader market indices, such as the NYSE Composite and the Russell 2000, and narrower ones like the DOW and S&P 500.  The broader indices started their correction much earlier and have fallen further than the DOW and the S&P 500.  So any new high during the initial pull back is unlikely to last for long.



Since we will be correcting for a 3-year bull run, the correction that follows will be stretched in time. The price itself will probably not be as sharp as in the correction following the 2007 peak.  It may not make new lows either.  It is too early to predict the shape of the correction to come or its first target.  Suffice to say sell rallies from hereon. Watch for the first pullback though.  As mentioned above, sometimes it can make a new high though this time the probability is low.



Sensex:  The Sensex has been in an orderly correction from its high at 21,050 in November 2010 and made a low of 15,135 in December 2011 in 3 major waves.  From there it rallied to a high of 18,470, which I flagged as a bear-rally.  It has since fallen off to below its 200 DMA and is currently at 17,145.  While a minor pull back is possible in tune with world markets, this fall is likely to retest the floor at 15,135 established in the previous fall.


The correction will get more volatile as we approach year-end with sharp bear rallies and equally sharp falls.  But the trend until then is likely to be down keeping pace with the correction in markets abroad.



Shanghai Composite:  The Chinese markets corrected from a high of 2478 without breaking its long-term trend up that looks set to achieve its target of 2550 despite the turmoil in other world markets.  I would keep a watch on China and Japan as possible counter trend markets because both have followed a different correction path from other world markets.  Will cover Nikkei from next blog post.



$-Index:  The $-Index gave its first indication that the ongoing correction from June 2010 may be nearing its final stages.  It broke pattern to rally from 78 levels to high of close to 80 topping the preceding top at 79.75.  The Index has a downward sloping trend line stretching from its peak at 88.5 to its last major peak at 81.8.  On the other hand, it has an upward sloping trend line stretching from its last floor at 72.8 to its low of 74.8 in October 2011.  The $-Index is likely to be triangulated between these two trend lines and a break out on the upper side is like by September end.  What the charts say is that the final major leg down, now under way, is unlikely to take the $-Index below 76.5.  It is too early to turn a $ bull.  But a retest of 72 is more or less ruled out unless 76 breaks.  That’s unlikely if my triangulation scenario holds.



Euro-$:  Without going into my wave counts, let me point out the significance of the 1.25 level on the Euro-$ chart.


Firstly, from a all time low of 0.8275 in October 2000, the Euro rallied to 1.27 in August 2004 establishing the 1.25 as the top.  From there followed a shallow correction spanning nearly 3 years clustered around 1.25 before the Euro rallied to its all time high of 1.6 in April 2008.


Since then the Euro has tested the 1.25 mark on 4 different occasions under a variety of circumstances but the top has held out without a decisive breach.


Its most recent test, the 4th, came in January 2012.  Not only did the floor of 1.26 hold but it made a higher low exactly on the long-term trend line that stretches from December 2000 low of 0.82 to the low of 1.18750 in June 2010, validating the support line.


From its recent low at 1.2624 in January 2012, the Euro is in a bullish uptrend and after a high of 1.3465 has repeatedly tested the new floor at 1.31.  That in my view confirms the start of a new bullish run in the Euro with a first major target of 1.38.  Barring the usual corrections, a run up to 1.38 can happen in a matter of weeks.



$-INR:  As indicated in the last blog post, the $ broke through the first overhead resistance at 49.75 to shoot for 51 meeting RBI intervention at 50.75.  Unlikely that RBI will be able to hold down the $ below 51 for too long.  Conversely a breach of the first floor at 49.75 looks unlikely.  Retain 51 as the first target followed by 52.  RBI intervention makes trading in INR too risky.  Use it for strategic hedging because RBI intervention means a large supply of $ that will be difficult to find in a normal market.  RBI will realize it is being gamed and shrink its intervention accordingly.



Cotton [NYSE]: Cotton made a high of 227 in March 2011 and has been in a free fall from then making a low of 84.35 in December 2011.  The 84 price level represents the top of the Cotton market over a period spanning 30 years of trading in the commodity and is therefore a well established support.


Cotton has rallied from 84.35 to 99.5 its first overhead resistance, and come back to successfully retest 84.35 bottoming out at 87.5 twice.  That’s confirmation of the corrective uptrend, which has 100 as the first target followed by 105 and 115.  Mind the move up is corrective but from the low base the relative upside is pretty major for a commodity like cotton.  No wonder markets spooked on an Indian ban on cotton exports.



Gold:  Gold confirmed its orderly correction underway by not breaching the $1800 mark as pointed out in my last blog post.  Barring a corrective pullback, gold is now headed for a retest of $1500 before July end, possibly multiple times.  Gold should be looked at for investment once it completes this cycle of correction by the end of July this year if or if it rallies past $1800.  Not bullish on gold no matter what the gold salesmen spin out.  Must note though that gold may not have peaked out at 1920.  That will be known only from the price action after this correction.  Until then it is wise to respect the bear trend.



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. March 11, 2012 at 11:43 am

    must also note though that nifty index may not have bottomed out 4,531.15 on 20Dec2011, that will be known only by 20Dec2012 am i correct

  2. sunil
    March 12, 2012 at 1:18 pm

    i m sunil from textile industry and as per my knowledge and the ground reality there are no chances as such for cotton to move up from here as the production is at a high world over besides the carry over stocks are also highest and not been supported by the garment pick up world over, though your mentions regarding technicals and chart readings may signal a different view.

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