Home > Uncategorized > MARKET NOTES: Heading towards a death cross in the US markets.

MARKET NOTES: Heading towards a death cross in the US markets.

MARKET NOTES:  Heading towards a death cross in the US markets.




Gold:  Gold was oversold after having hit a low of $1527 on 16th May.  It has since been correcting for those over sold conditions but without seriously challenging its overhead resistance at $1600.  It closed the week at $1572.84.



As per my wave counts, the correction in gold from its top at $1920 is not done in terms of price and time.  There is at least another leg down to the correction, which could take gold down to test the $1430 region before the middle of July this year.  In the ensuing week gold could reaffirm the overhead resistance at $1600 before heading down to test the first floor in the $1530 region.


Not bullish on gold as yet, because the near term bottom of this correction hasn’t been firmly established.



DXY:  The Dollar’s rise from 72.8 in May 2011 to date [about an year] represents an interesting picture.  The Dollar has been in a very long-term decline from a level of 130 in 1985 to a low of 71.5 in April 2008.  The low formed in May of 2011 at 72.8 represents a successful test of the previous bottom in April 2008.  DXY had rallied to a high of 90 after the April 2008 bottom.  Whether the rally from the May 2011 represents a new bull wave or not is too early to tell.  What is clear is that the wave counts from the low of 72.8 in May 2011 represent a bullish picture with first target at 83.75 followed by 86.5.  This will happen over time of course.


DXY has cleared its first major hurdle at 82 with remarkable ease and has since retested the new floor from the topside.  This opens the way to the next target of 83.75 in the coming weeks.  Remain bullish on the Dollar.



EURUSD:  As expected the 1.26 level on the Euro did not hold and the Euro closed the week at 1.25150.  The violation of 1.26 level opened the way for a retest of 1.20 level.  However, the next immediate target for the Euro is 1.24.  It is likely to test that very soon, possibly next week itself before some consolidation sets in.  There is simply nothing bullish about the Euro on the charts any longer.  It needs to find a firm floor first and the likely candidate for that could be 1.20 although even that can’t be a certainty.




NYSE COMPOSITE:  The index closed the last week at 7534.33.  The index presents a very bearish picture.  The index is below its 200 DMA, which is currently 7813.  Its 50 DMA stands at 7875. The gap between the two crucial DMAs is narrowing swiftly.  A death cross could ensue during the course of the next week bringing enhanced selling pressure in the market.


On a more long-term view, the 7180 region on the index is crucial.  It represents the top made by the index in 2001 before correcting down to 4500.  The region has failed to act as a support on previous occasions.  A repeat of the same may be expected.  But a violation also implies a confirmation of a long-term bear market in stocks that may stretch over years.  So the level is crucial even if it doesn’t count as a support.


The first target for the index remains 7,200 followed by a deeper floor at 6425.  Watch for the death cross in the ensuing week.  It may bring a deluge of sell orders from long-term “buy and hold” investors that won’t be reversed in hurry.  I remain bearish on the US equity markets.



$-INR:  As expected, room was created above the previous top at 54.3 to establish a new trading range that spans from 56.4 to 54.3.  This range should be adequate to determine where the $ wishes to go against the Rupee next.  Expect a few weeks of base building in this range during which the players test supply and demand under the new trading conditions imposed by the RBI.


In the ensuing week expect Rupee to come back and test the new floor at 54.3.  There is absolutely no reason to think we have arrived at a sustainable value for the $ in our exchange markets given the horrendous trading restrictions imposed by RBI. The ultimate value for the Dollar has to be higher.  But in the immediate future expect a period of consolidation and testing within the new trading range for a few weeks. One hopes RBI will be closely watching DXY.  But don’t count on an immediate impact on trading in local markets.  I remain neutral on the Rupee in the 54.5 to 56.5 trading range but with a bullish bias for the $.



Sensex:  Sensex showed a small bounce from the 15,800 level during the last week and closed at 16,218.  A small rally in the index from these levels into the 17,000 area is possible in the coming week as the bourses are oversold.  On the other hand, a death cross in the US markets could trigger further FII selling in Indian bourses.  Whichever trajectory stocks take over the next week, it is very unlikely that we are done with the selling in the markets.  The possibility that the markets could decline to 15,100 before rallying to 17,000 is more logical but it’s always very difficult to predict the exact way a cookie crumbles.  To my mind it is better to go to 15,100 first before rallying to 17,000 for oversold conditions.





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. ashish
    May 27, 2012 at 4:08 am

    Missing your comments on silver 😦

  2. May 28, 2012 at 12:48 pm

    Hello Sonali,

    Nice article. I have read other articles by you and definitely appreciate the hard work you put in to share your thoughts with the world.

    Although there is not much that I would debate in this article. I have a different view on Indian National Rupee. We have recommended “Buy” on INR for the second time this year with a potential profit target of 500%.

    I believe that in today’s market, hot money dominates the fundamentals. Any fundamental idea is incomplete without a catalyst.

    The positive catalysts that I seefor INR are as follow

    1) India ranks among the top 3 countries in the world in terms of capital repatriation by Indian residents living abroad. RBI on Friday raised the ceiling on interest that can be paid to NRI’s on their USD denominated accounts to 500 bps. This interest is tax free. A high tax free interest income is expected to further improve repatriation.

    2) Finance Ministry has rolled back GAAR to the extent that it will not be applied in retrospective and that the burden of proof for invoking GAAR would lie on the Income Tax department. In the initial proposal was to put the burden of proof of innocence on the tax payer.

    3) RBI has started intervening in the currency markets to contain the volatility. We saw such interventions in Jan and Feb and as a result the currency appreciated by 6 Rs against the dollar in the months of Jan and Feb of this year. If you look out for rupee future spread. One month rupee forward spread was at 49 paisa on 27th of March. It has been above 30 since October 2011, while the long term average is at 24. Today was the first day we saw it trading at 25 paisa. Clearly there is some intervention going on there.

    4) On a historical PE basis SENSEX looks cheaper and any “risk-on” catalyst will encourage hot money to flow back into the Indian Equity markets, further improving the demand for Indian Rupee

    Given that you are a trader, I would suggest you to read the article “Indian national Rupee: Is it time to Buy”.


    Your thoughts are welcome.

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