Home > Uncategorized > MARKET NOTES: High time for North Block to get the market message right

MARKET NOTES: High time for North Block to get the market message right

MARKET NOTES:  High time for North Block to get the market message right.



Gold:  Gold decisively broke below its significant floor at $1610 to close at $1579.44 for the week.  With this break, gold signaled two things.  Firstly, it confirmed its next significant target of $1540 in the near-term future.  More importantly, the pattern it opened up is beginning to look more like an impulsive move.  Taken together from the last top of $1920 in June 2011, we could be in Wave 3 of an impulsive move down for gold, with a price target of $1480.  The confirmation for the new target will come on sustained break below $1550.  The short-term oscillators suggest a mildly oversold market.  There could be some consolidation before an assault on $1550 is made.  However, there is nothing remotely bullish on the charts about gold.



Silver:  Silver decisively cracked the floor at $30 to close at $28.88 after making a low of $28.4 where the metal has a minor floor.  Expect a few days of consolidation above $28.4 before the metal makes a bid for its next target of $26.  It’s very unlikely that we will see any significant pullback in the metal before we hit $26. There is not much between $26 and $20 for Silver by way of resistances.  Hence a break of $26 will result in a bloodbath.  There is both time and space for such a move and so ruling it out will be foolish.



WTI Crude:  WTI Crude decisively broke below $100 to close the week at $96.1.  Its next logical target is $91 and it may consolidate a few days before testing that floor.  A break of $91 would open the way for a test of the more substantial floor at $75 though not in the immediate future.  In that sense, the $91 floor is crucial in resolving the befuddling wave counts in crude. However, until $91 is decisively taken out, or causes a sustained bounce from there, the long-term picture in Crude remains unresolved in my view.



NYSE Composite:  The wave picture in the NYSE Composite is far clearer than in the narrower indices like S&P 500 and DOW.  So I shall use the composite index to study the underlying forces and trends working on the market.  The first thing to note is that we remain in the firm grip of a bear market that commenced in October 2007.  The second equally obvious fact is that in the last rally the NYSE Comp failed to reach the previous top of 8738 despite its narrower cousins having done so convincingly.  In terms of my wave counts, that means the index has commenced its descent to 6400 area from its recent top of 8260 and has time until the end of December this year to get there.


That corresponds to target of roughly 1100 on the S&P 500 and 10,600 on the DOW.  Dow will have confirmed this target in the medium term on a violation of 12,700 and its 200 DMA, which is currently at 12,465.  Likewise S&P 500 would confirm its target on a violation of 1335 or its 200 DMA now placed at 1315.


In the immediate term of the next week or so, the markets are like to pullback mildly or consolidate above the mentioned critical levels before attempting an assault on them.  Use rallies to exit if stuck.



$-INR:  The $ closed at 53.15 after making a high of 53.88 during the week.  The $ is not overbought on the oscillator charts.  In terms of time, there is room for the $ to go higher.  So most like the $ is consolidating before taking out the previous top at 54.31.  RBI has been intervening in the market daily.  So it is impossible to predict which way things will break after the previous top is taken out.



Sensex:  This week, instead of the Sensex or the Nifty, we shall look at a lesser-discussed index, the Defty which is nothing but the Nifty expressed in US $ as at close daily.  It has a fascinating story to tell.



First note that Defty never made it back to the all time high of 5582 achieved in January 2008 in the rally that ended November 2010.  Instead it made a significantly lower top at 4980.  This is in stark contrast to the Sensex and the Nifty that made it to their corresponding previous highs in January 2008.  In other words, for the FIIs, in $ terms, which their reference currency, India, like the rest of the world markets, remains firmly in the grip of bears.  So forget the hoopla that the synthetic bulls on popular TV programs feed you.  FIIs are not putting their money where their mouth is.


In terms of wave counts and possible targets, the picture that emerges is even bleaker.  Firstly, from the top of 4980 on the index in November 2010, at the minimum we are in wave C down that has made a low of 2950 already.  Its immediate target remains the same in the current fall.  That corresponds to a level of approximately 15,000 on the Sensex.  That is the good news.


While 2950 on the Defty is a good support, the long-term bull market line spanning from 690 in April 2003 to 1800 in March 2009 lies at 2765, below 2950.  That corresponds to level of 12,650 on the Sensex or 3785 on the Nifty.  Whether the INR indices get there or not depends on the INR’s external values.  But the picture emerging on the charts is bleak.


High time somebody in North Block actually sits down to rethink FII and FDI numbers in light of the above analysis if we are to avoid a catastrophe on the BoP front.  Our CAD IS ALREADY NUDGING 4% OF GDP.


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. May 12, 2012 at 8:40 am

    Thanks for this Sonali. Short and useful. Hope North Block delays raise in petrol premises since international crude prices have fallen now. Honestly economist PM and his Advisor Rangarajan could author a book titled ‘How to kill an Emerging Market Growing Economy’.

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