Archive for June, 2012

MARKET NOTES: The rally in the world markets for risky assets is not likely to last long

MARKET NOTES:  The rally in the world markets for risky assets is not likely to last long.



Friday saw the past week end in a huge rally in almost all asset classes.  The S&P 500 [SPX] ended the week at 1362, Oil [CLQ2] at $84.84, Gold [GCQ2] at $1598.60, Dollar Index [DXY] at 81.75 and the Euro$ [EURUSD] at 1.2658.  Is the rally reactive or is the bull market set to resume is the key question.  Let us take a look at the key markets one by one to answer that question.



Dollar Index [DXY]:  The Dollar has been in a major uptrend since the beginning of May 2011 from a level of 72.86 and there is nothing to show that this major uptrend has reversed.  The Dollar made a high of 83.65 on 1st June this year and has been in small but orderly correction since then.  The first target for the current correction was 81.50, which was nicked on 18th June.  Since then the Dollar has had a reactive pull-back to a lower high of 83.07 on 28th June from where it closed the week with a sharp fall to 81.56 and then recovering a bit to 81.7530.


The next target for the current correction is 80.  However, the huge gap in prices between 80 and 81.50 is likely to act as a major support to the Dollar in the coming week.  The Dollar is likely consolidate just above 81.50 in the ensuing week with a very small probability that it could aim for 80 if the gap looks like being closed.  As mentioned earlier, the major trend in the Dollar remains up.  What we are seeing now is just a correction.  Incidentally, yields on the 10 year US Treasury Notes were a mere 165 basis points but significantly higher than near zero rates on bunds.



Euro$ [EURUSD]:  The Euro broke a major supportive trend line stretching from 0.82030 in October 2000 to 1.19124 in March 2010.  On violating the trend line, the Euro made a low of 1.2384, rallied to just under the trend line at 1.26640 before turning down sharply again,  closing the week at 1.2658.  That is major bearish price action on the charts.


The rally in the Euro we saw on Friday is unlikely to last beyond a day or two before the Euro reverses and heads towards its first target at 1.24 and followed by another deeper floor at 1.2150.


On a more long-term horizon, a retest of 1.19 against the Dollar some time by August this year appears likely on the charts.  With the violation of the above mentioned trend line, the case for bullishness in the Euro recedes into insignificance.  Sell the rallies in the pair.



Gold [GCQ2]:  Gold is nearing the end of the first leg of its correction from the top of 1920 in June 2011.  Whether the correction will go straight through for another leg or end in a substantial rally depends on the metal’s long-term intentions that are difficult to guess at this point.  Hopefully the price action in the next two weeks will provide clues to the long-term direction.


From the charts, the rally in gold from 1547.24 to 1598.20 is reactive in nature.  This is unlikely to sustain and the metal may head back to the $1550 region again by the 3rd week of July.  A decisive plunge below $1550 will be the first indication that the metal may head for a further leg of correction without a rally.  On the other hand, a failure to decisively break the $1550 level will indicate an end to the first leg of the correction and a tradable rally from there.


Keep a sharp lookout for the price pattern in the metal for the next two weeks for long-term clues.



Silver:  Silver made a low of 26.11 last week before rallying sharply to 27.91.  The pullback is reactive and the metal will resume its downtrend again but perhaps not immediately.  Any rally will be capped by the huge gap in prices above $30.  Expect a period of consolidation in Silver between $26 and $30 before the downtrend resumes.  The case for bullishness in Silver is much weaker than in gold.




WTI Crude [CLQ2]:  Crude made a low of $77.69 during the week before rallying to close at 84.96 after making a high of 85.34.  As mentioned in my last post, the down turn in crude is not likely to last for long.  Last week’s price action adds to my conviction.


However, the rally on Friday was reactive.  Crude could again come down to retest the $75 level before the middle of August.  So expect crude to consolidate between $86 and $76 until then.


Note the probability of crude sustaining these levels beyond the end of August is practically nil.  On the other hand, an early termination of the downtrend also looks unlikely.  India has rapidly narrowing window of opportunity to complete oil sector reforms.  The government appears hell bent on squandering it.



$-INR:  As mentioned in my last post, the Dollar tested the upper limit of 57.50 against INR before closing the week at 55.50.  Note, the $ could test the new floor at 54.50 on Monday or Tuesday but is unlikely to breach it.


On the charts, the probability of Dollar flaring up against the INR during the week to retest 57.50 or even breach it is very high.  The period 29th May to 4th July was correction time for the $ to test the new floor at 54.50.  That floor was held.  Technically, that gives the $ another leg up in the run from 48.5 to 54.50.  How far will the $ go in the second leg up and what will trigger it is difficult to say as we are in uncharted territory.


Nevertheless, we must expect another attempt by the $ to make a new in the month of July or 1st week of August.  That new high could be significantly higher than 57.50.  R60.50 looks like one level the $ could aim for by the first week of August if not earlier.



S&P 500 [SPX]:  SPX turned down from 1344 as expected making a low of 1309.72 during the week.  Then it unleashed a rally that was rather unexpected in strength making a top of 1362 before closing the week there.  SPX closed just a notch blow 1363.46, which was the high after the correction down to 1267.16.


The rally on Friday doesn’t end the correction in the US markets now under way.  From the looks of it and the timing, it appears to be just a sharp reactive pullback and the downtrend can be expected to resume shortly.


On resumption of the downtrend, the first target for SPX will be 1310 followed by a deeper floor at 1267.  On the other hand, a close above 1380 will almost certainly end the current correction.  While the probability of such a denouement is rather low, the possibility must be taken into account.


Note, the other broader US indices such as the NYSE Composite and the Russel 2000, are not as assertive in their pullback as the SPX.  Both present a fairly bearish picture that lends weight to the fact the SPX correction has probably not ended.



SENSEX:  After making a low 15,746 on 1st June, the Sensex has been in a reactive uptrend.  One did not expect it to break above its 200 DMA as it did last Friday.  The Sensex closed the week at 17,430 well above its 200 DMA at 17,100.


Does the break above 200 DMA together with the sequence of higher bottoms constitute a breakout or the beginning of a new bull run?


As mentioned in my last post, we are towards the fag end of a downtrend where sharp bear rallies are the norm.  These rallies often trigger false breakouts.  Friday’s rally appears to be one such.  Having broken above 17,100, the Sensex could head first for 17,900 followed by a higher target of 18,500.


The Sensex has a downward sloping trend line from 20,605 through 18,300 that could meet the rising index in the region of 18,000 to 18,100.  The price action in this area could provide more clues to future trend.


On the face of it, it is not advisable chase this rally.  Once short covering exhausts, the downtrend will in all probability resume.


The Sensex’ downside target of 15,500 remains.





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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June 28, 2012 2 comments




I have tremendous respect for Tavleen Singh’s espousal of economic reforms and her relentless focus on the leftist drivel that the Congress shoves down our throats in the mistaken attempt to buy votes. However, the notion that we can take politics for granted while we push towards economic reforms by whichever means possible is questionable.  Frustration with the slow pace of reforms has lead some to argue for a dose of “strong leadership” by an authoritarian figure like Shri Modi to push the polity towards reforms that at first take are distinctly unpalatable.  The necessary hike in POL prices to cut subsidies or the need to rationalize agricultural product marketing and distribution to debottleneck the sector through FDI are two typical examples.  However, in a very basic sense such an argument is deeply flawed.



The domain of validity of Economics begins where politics ends.  In other words economics assumes you have already created the political conditions in which all members of the polity in an economy are able participate in its processes with rational objectives. This is so basic to economics that we tend to overlook this fact.  Take Punjab of the 80s or Kashmir of the 90s.  Did it even make sense to talk of economic reforms in those two states when the politics there had been so vitiated?  Society has some buffer against divisive politics.  But whether it was in Assam, Punjab or Kashmir, there is a point beyond which divisive politics fractures society making any kind of economic progress difficult before the fires have been put out and normalcy restored.  A full third of India’s districts are affected by Maoist insurgencies that have stretched our security forces.  Do we need more divisive politics?  Can a polity polarized by such deeply divisive issues like caste and creed actually achieve a consensus around economic reforms?



How can secularism be a sterile issue if its existence is threatened through polarization along a religious fault line?  The fact is secularism is the bedrock of our constitution.  We fought for secularism and had to see the country torn into two over the issue.  What’s is the difference between Pakistan and us in one word?  Yes, secularism.  The concept is deeply embedded in our fundamental rights when it guarantees them to every citizen irrespective of his or her personal faith, religion or whatever.  It doesn’t really matter how you define secularism.  So long as those fundamental rights are enforceable, the secular character of our polity is beyond question. Tavleen Singh’s contention that secularism arose in the context of the Wests struggle with the church doesn’t make secularism irrelevant to us.  How many of the ideas in the constitution including the notion of equality irrespective of caste are indigenous to us?


The fact is secularism is a necessary prerequisite for our existence as a multi-cultural society.  We take peace and normal politics for granted when it is present.  When it is challenged, as is being done by Hindutva forces to mobilize its cadres, the issue becomes central and every thing else, including reforms, recede into insignificance.  Secularism doesn’t guarantee reforms.  But how do you focus on anything else in politics when that very sheet anchor is swept away by raising communal storms?  Championing Hindutva to promote reforms will be utterly self-defeating.



How Modi’s “success” in Gujarat translates into Hindutva per se being conducive to economic reforms remains an unexplained mystery.  On face of it, the notion that an antediluvian movement that seeks to glorify a mythical past by selective embellishment can promote modernity is highly questionable.  How can an illiberal doctrine that is averse to modernity, mired in myth making, and uses medieval rituals to organize people, lead to a society that is open, competitive and merit based?  On the other hand, the example of our neighbor shows, mindless talibanization of a faith leads to total chaos.  Yet we have some intellectuals promoting the notion that the Hindutva forces promote reforms?  The notion is incredible.


The second aspect of the matter merits even deeper study.  Modi has done well in Gujarat.  But has BJP, and by extension Hindutva, done well as well in Madhya Pradesh, Karnataka or Chhattisgarh?  Why is Hindutva singled out only in Gujarat?  Furthermore, Maharashtra, Tamil Nadu, Bihar have done better than Gujarat without fudging accounts and in the absence of Hindutva.  What accounts for their good performance vis-à-vis Gujarat?  The fact is Hindutva is largely irrelevant to reforms.  It is being conflated with good governance and economic performance in a determined bid to promote Shri Modis brand of polarization in order to garner votes.  Hindutva has nothing to do with economic reforms.



It is relevant here to scan the social base of the BJP while examining its credentials to promoting further reforms of the sort we need.  In the socialist era, the license permit raj promoted by the Congress adversely affected the trading and merchant classes through a plethora of controls that made them vulnerable to extortion by babudom and politicians.  Think of rationing, trade and credit restrictions to wholesale trade, fair price shops and the like.  This made the trading and merchant classes pro-BJP because it espoused their cause.  Likewise big business was tied down and thwarted by legislation like MRTP etc. that denied them the opportunity to grow.  They too weighed in with the BJP for reforms.  Once the Congress removed those restrictions as part of the reforms package, does the BJP’s core base still want reforms?  The record is very patchy.



Fact is, support to reforms will always be issue based.  The very base that wanted the trade and other restrictions of the license permit raj to go now opposes FDI in retail and reforms in agricultural product marketing and distribution because it hurts its narrow business interests, farmers be damned.  That very support base of the BJP that opposes expansion in subsidies to the poor such as NREGA also opposes removal of subsidies on diesel and petrol.  The very businesses that rail against open ended subsidies and doles oppose removal of fertilizer subsidies that flow into their coffers even though they are meant for farmers.  If you look at the broader picture, reforms 2.0 that we need are necessary to promote more competition among businesses from local and foreign partners and to end subsidies that actually flow to businesses.  Both these type of reforms are anathema to the BJP’s base, which is why reforms have stalled.  Which is not to say the Congress supports these reforms.  There is plenty of reason to believe that internal opposition to reforms 2.0 in the Congress is holding them up.  Be that as it may, the need for reforms is being used to subtly push forward the Hindutva project and not the other way around.  We need to focus on such unwarranted conflation flowing out of Gujarat hype.



There is need to carefully examine why people assume that we need an authoritarian figure like Shri Modi combined with the storm troopers of Hindutva to promote economic reforms.  Tavleen Singh is absolutely on the mark when she asks the leftists in the NDA to show what they are going to do to ease power shortages, lick the education system in shape or repair health care.  It may well be that secularism is a ploy used by the leftists in the NDA to derail BJP’s ambitions.  But that doesn’t mean that either Hindutva or the authoritarianism promote economic reforms and/or growth.  It doesn’t mean politics of polarization is needed to build a momentum for change.  Last but not the least, it doesn’t mean secularism once achieved becomes irrelevant.  We don’t come into the world hardwired for secularism.  Quite the contrary.  Secularism is therefore something you promote as an ideal through education and acculturation.  You cannot hold a large diverse society like India together by regimenting everybody into some ill-defined notion of Hindutva that even its proponents cannot pin down.  The only way forward is through secularism, and if it’s a dead issue within the NDA, it will be very much alive and kicking if BJP were to lurch towards the Modi brand of polarized politics.


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Reinventing God

Reinventing God




Some 3 billion years ago, unicellular microbes learnt how to absorb a photon from the sun to feed them through photosynthesis.  In the process they gave off Oxygen, the gas that eventually went on to create the earth’s atmosphere and make other life forms on land possible.  Strange as it may sound, within the human genome, we still carry some of the genes that enabled photosynthesis in the ancient microbes.  In fact our genome carries most of the genetic chain through which we evolved to our present form spanning some 3.5 billion years of our evolutionary history.  We use only a tiny fraction of the humongous genome in our day-to-day lives.  The rest stays dormant. In contrast to the 3.5 billion years of our evolutionary history, recorded history barely spans the last 4500 years.



Yet the genome that we carry is simply not enough to live in the modern world.  If we somehow got hold of a community of ancients and put then in a modern city, they would quickly perish from hunger or violence.  If they had any hope of survival it would owed to their general intelligence, that unique human capability that enables us to build abstract models of reality in our heads, work out causal relations and to apply the derived solutions to objective reality. What has made us so dependent on general intelligence to survive in the modern world?



As our numbers have grown, humans have had to re-organize themselves in ever more complex societies in order feed, clothe and shelter themselves.  We started this process as loosely knit hunter-gatherer tribes who needed to co-operate in order to hunt big game.  The hunter-gatherers evolved into nomads and the pastoral farmers.  Farmers were followed by city dwellers and we may at the cusp of another transition right now.



Each of these changes in modes of existence was basically prompted by the need to feed and shelter ever growing number of people with in a given set of natural resources.  Thus farming and domestication of animals stepped up human productivity. A much larger number of people could be supported by the same land mass and water as compared with hunter gathers with less risk.  Organization of farmers around cities enabled economic specialization resulting in another quantum leap in productivity by helping development of trade. Cities in turn lead to nation states and so on.  However, the underlying trend in all transitions is the same.


The burgeoning numbers of people in relation to available resources forced innovation and, innovation in turn forced consequent changes in the mode of living of the species.  With each such transition, the culture and, within culture the dominant religion, also underwent change. Each culture, and religion, comes to us in a context of the then prevailing environment.



With each quantum jump in complexity, we have grown more and more dependent on our general intelligence to understand self-evolved technologies and concepts in order to live in a self-created world. More than our DNA, it is culture that equips us with the tools necessary to survive in our self-created world.


Human societies have used religion as the tool for effecting and managing the transition from one mode of living to another.  Each transition represented an upheaval in the existing way of life.  People found old skills useless, were forced to learn new skills, new ways of organizing their lives. Mating and marriage changed, old leaders were discarded and new ones found, new institutions sprang up or were created to meet new needs.  The changes required were deep, invasive, and extensive and left nobody and nothing untouched.


How this process was managed is the real story of our history.  There was no grand design behind the management of change.  Instead, whether it is Hinduism, Christianity or Islam, change came in small incremental steps as people experimented with new ideas in their day-to-day lives and others copied.  Each of the religious movement was a culmination of a series of changes already well in place though not dominant.


Thus Christ did not bring anything new to the table by himself.  Most of what he preached was there before he came on the scene.  Instead his genius lay in two things.  Firstly he was able to weave all the different strands into one coherent whole that could easily be digested by the laity.  The main cause of strife in his time was the need to enslave others.  He saw such exploitative mode of living was unnecessary if the elites were to lead simpler lives with fewer resources.  And he was able to sell this vision of equality, freedom and justice to the serfs by his defiance of authority.  Fact is Christ was the first true communist with his insistence on simple life within a given set of resources shared more or less equally among all.  Modern Christianity is nothing like the original that Christ preached.



Note the quantum leap in productivity and well being from Christianity came by way of freedom given to slaves and dismantling of the State apparatus that captured and kept people enslaved for the Roman nobility.  This freed up tremendous resources, which were now left in the hands of the peasants.  Rome may have crumbled but the peasantry prospered, as did the slaves.  The lack of emphasis within Christianity on innovation, creativity, wealth creation etc., and its enforcement as a dogma by its priesthood subsequently, caused it to plunge much of Europe into the dark ages for some 1000 years.  Which only goes onto show that while religion is a great tool for managing change in a period of rapid transition, it limitations should never be lost sight of.



As a species we are going to need religion again, and in fairly large dose, to cope with the emerging reality of constraints on our growth in numbers.  We are running short of fresh water, oxygen and fossil fuels.  Climate change is for real.  The scale of problems we face is staggering.  One study shows in much of southern US, India and China, agricultural production will fall by as much as 50% in the next 30 years, while our numbers grow from 7 billion to 9 billion.  Lost food production will have to be replaced from areas like Canada, Russia and the Artic region as global warming melts the ice there.  These changes will trigger huge migrations on a scale hard to imagine.  But as history shows we have experienced such mass migrations and upheavals in the past. And to manage the associated changes we will almost certainly reach out for that familiar toolbox of religion.



Hard to say what shape the new religiosity will take shape.  But what can be said with certainty is the changes that are necessary to the present mode of living will not be possible without the aid of religion or something like it.  The new religiosity may not be startlingly new.  As we see from the history of existing religions, what they brought to the table were not new ideas per se.  Instead they brought a new context to existing ideas, which were not dominant but needed further emphasis in practice.  For the dominant classes, these were heretical in nature and practiced in stealth by the wider less empowered members of society.  What religion bestowed on such ideas were legitimacy and the certitude that comes with the knowledge that others believe in them too. To achieve legitimacy, religion had to capture political power as well.  Whether that capture was violent or peaceful is beside the point.



That then is central dilemma of our next 50 years.  Emerging constraints demand change in our way of life.  To effect and manage that change we have to reach for a very ancient but powerful tool in the shape of religiosity.  It will not be the old religion per se because every successful religion must account for day-to-day reality of the contemporary times that is visible to populations.  While all religions are dogma, the new one must preserve freedom for innovation, creativity and experimentation because all the solutions to problems we face are not known.  To preserve such freedom for the people we had to separate religion from political authority. We arranged such that religion could still work through culture but could not enforced by coercive state power.  Yet it is difficult to see how we can cage the beast we have to unleash to effect change.


If a God doesn’t appear on the horizon to lead us out of the present conundrum, then as usual, we will have to invent one.

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MARKET NOTES: The erratic monsoon this year spells trouble for Indian markets

June 24, 2012 1 comment

MARKET NOTES:  The erratic monsoon this year spells trouble for Indian markets.




Dollar Index [DXY]:  The Dollar remains in a downtrend from its recent top of 83.67 on 1st June.  After making a low of 81.2250 on 6th June, the index pulled back to a lower top of 82.67 before closing the week at 82.4880.


Barring an attempt to challenge the lower of 82.67 early next week, the downtrend in the Dollar is likely to continue.  Its first target on the downside is 81.2250 followed by a more substantial floor at 80.25.


As mentioned last week, while the $ remains in a long-term uptrend until the trend line drown by joining the lows of 73.6800 and 78.6650 is violated, one of the aims of the current correction is to retest & revalidate this trend line.  The decline could continue until end August.


The Dollars reaction to the 80-price region therefore will be very interesting.  The wave count favors a decline in the value of DXY in the coming week.




Gold [GCQ2]:  As noted in my last blog post, Gold price crashed in a swift move from a high of $1633 to a low of $1563 before closing the week at $1571.54.


Gold continues to be in a downtrend.  The first target remains at $1520 followed by another floor at $1470.


We are very late into a correction in gold that began in September last year from a price level of $1920.  It is hazardous to call a bottom in a commodity that has had a bull run spanning two decades.  Considering the time cycles in Gold, it is premature to say if gold is anywhere near a bottom.  On the other hand, corrections are never one-way.  This blog had called for covering shorts at $1550.  Those who followed that advise would have avoided the recent whiplash.


In my opinion Gold is unlikely to significantly breach $1520 in the near term.  And while, the long-term correction in gold may not be over, one should see a substantial pull back from the $1470-$1520 region in August.  Don’t remain short and look for buying opportunities in a panic.



Silver:  Silver closed the week at $26.90.  Whichever way you look at the Silver chart it has bear written all over it.  I don’t trade the metal and this commentary is included here at the request of some tweeps.  Silver could pullback again from the floor at $26 but the floor is likely to give way before we can see a meaningful rally in the metal.


Silver could consolidate for a while above $26 before it builds up momentum to try and breach the $26 floor again.  The huge gap $30 and $32.5 is likely to act as a tough overhead resistance to any bear rallies.  Avoid trading the metal until the floor at $26 is decisively breached.




WTI Crude [CLQ2]:  As noted in my last blog post, Crude oil had a price target of $75.  During the week, Crude made a low of $77.93 before closing the week at $79.76.


Crude continues to be in a downtrend.  The first target remains at $75.  Below $75, Oil has a floor of sorts $64.  But for all practical purposes, a decisive violation of $70 implies a retest of the $35 level again, which I don’t think is on the cards.



Maintain my view that the current down trend is a correction to the rise in crude prices from $32.40 in December 2008 to $114.83 in May 2011.  That was a rise of $82.43.  A 50% retracement of the increase in price from December 2008 to May 2011 yields a price of approximately $75 that ties is neatly with my target of $75.


The ensuing weeks are likely to see a repeated testing of the $75 along with some base building for a subsequent rally in prices.  I would therefore expect crude to consolidate for 2 months between $75 and $80.


As mentioned in my last blog post, I don’t see the consolidation in crude prices between 75-80 level lasting beyond September.  India’s window of opportunity for POL sector reforms lies in the time between now and end September.




Euro$ [EURUSD]:  Contrary to all the screaming headline and the adverse news flow, I can’t find a reason to be bearish on the Euro.  Which sort of tells me that all the bad news was already in the price.  As always, I concern myself with what the price action tells me.  So I will stick with that story.


First point to note is that Euro made a low of 1.2286 on 1st June.  This low was substantially higher than the corresponding low the Euro made at 1.1871 back in June 2010.  Therefore, as long as the low of 1.22886 is not violated the trend shorting the Euro expecting a collapse is a low gain high-risk gamble.


After making a low on 1st June, EURUSD made a high of 1.275 on 18th June and has since corrected down to a low of 1.2518 before closing the week at 1.25680.  That correction implies a 50% retracement of the rise from the recent low on 1st June.


In my view the correction in the EURUSD pair may be over and the Euro is likely to resume its uptrend next week with a first target of 1.275.  The ultimate target of this rally remains 1.32.



$-INR:  As expected in the last blog post, the $ continued to consolidate in the new trading range of 54.50 to 57.50.  It is entirely possible that the topside of the trading range could see an extension to 58 or higher.  But such an extension may not result in the price sustaining there.  At some point $ sellers will have to come in.  I am therefore sanguine that the 54.50 to 57.50 trading range for the $ will hold for some time to come.


Having said that, RBI’s trading restrictions vitiate true price discovery.  As long as these restrictions continue, the true value of the $ is unknown.  So what we really have is a guessing game that involves reading the RBI’s mind.  Good to note that RBI is concentrating smoothening out the pikes instead of defending a particular value of the $.  That is the prudent way to go even the lack of firepower with RBI.




S&P500 [SPX]:  As expected in the last blog post, the reactive pullback in the US equity index topped out at 1363.83 and then resumed it’s down trend making a low of 1324.41 before closing the week at 1325.51.  The downtrend is likely to continue next week.


The first target for the downtrend remains at 1267.  The market’s reaction to this area is crucial for the future direction of the markets.  A violation of this level before the 1st week of July will be the first indication that the current correction’s duration will last longer than just a few weeks.


Remain bearish on US equities.




Shanghai Composite:  This blog had noted that the Chinese equity markets might have bottomed at 2132 on 6th January 2012 when this index made a double bottom at that level.  The index then rallied to 2480 in February, made a double top there, and has been correcting from there in a very orderly fashion.


After the top of 2478, the index made a low of 2242 on 29th march and rallied to 2438, just under its previous high and has since been correcting again.  It closed the last week at 2260, very close to the previous low of 2242.


The index’s reaction to the 2240 in the ensuing week will be watched with care.  A termination of the current downtrend in the index will be the first CONFIRMATION that the low made on 6th January was a bear market low and that the Chinese stocks are now in a substantial uptrend.  Hence watch index carefully.




Nifty:  As expected, the Nifty terminated its current pullback around 5168 making a fake head at 5200 to catch the unwary.  After making a low of 5041, the index closed the week at 5146.


The index is still slightly over bough despite the correction!  I expect the downtrend in stocks to resume in earnest next week.  The first downside target for the index remains at 4800 followed by a deeper floor at 4520.


Stocks are likely to drift towards 4800 during the ensuing week although they may not get there.  Also watch out for sharp bear rallies in individual stocks.  This is the season for such unpredictable rallies to correct for oversold conditions.  Don’t chase them.  They are not buying opportunities much less breakouts.


We are however towards the fag end of the bear move that has lasted for over an year.  Be ready with your blue-chip buy list and stalk them for buying opportunities in a panic.





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

Reading between the lines:

Reading between the lines:


The author of these tweets has often advised that his tweets should be read between the lines.  You may decide for yourself what the author is saying between the lines, to whom and towards what end.


Why have I put them here with my commentary?  Well, the author once wrote an article with the identical points and I asked in an RT what the definition of “good governance” was?  Upon which the author in his pique questioned my nationality without providing any basis for his subsequent assertions.  I am an Indian of course.



1.Debate on NaMo shd focus on right questions.He has proved himself to be an excellent administrator, good in implementation


The first duty of a government is to protect the life, liberty, and property of its citizens.  A little over 1000 people killed in riots in 2002 which lingered on for months.  Riot victims have not been rehabilitated.  Court orders to restore their properties have been ignored.


To frustrate the enquiries into the riots, the police force has been politicized, civil service has been split into rival camps, central services cadres have been sidelined in preference to more malleable officers from the State cadre, and statistics have been fudged to show higher agriculture and industrial growth.


But Modi, says B Raman, is an excellent administrator.  Good at implementing what?  Pogroms?



2.But is he a good thinker? What has been his contribution to policy-making—in the BJP & the nation.Is he a man of vision?


Relevant question no doubt.  But the real question should be about his attitude to economic reforms. Is Modi a reformer?  Has he pushed reforms or has he concentrated power in his own hands?  Mere quick allotment of land for industrial projects is not reform.  It may be efficient administration but it is not letting go of controls and allowing market forces to work.


On the contrary, Modi has given primacy to old school disruptive politics rather than support reforms.  He has opposed FDI in retail, thwarted implementation of GST and has done nothing to dismantle controls at the State level.



3. What vision he has for India & region?BJP leaders tend to have a better understanding of national security issues, but they overfocus.


That is again a good question.  But what is being suggested here to Modi supporters is to shift the debate to vision statements about India, economic growth and development.  A shrewd suggestion but it needs to be asked why, if such a vision exists, it hasn’t been articulated yet.  I hope Modi will lay out his vision and we will have the opportunity to study it.



4.NaMo’s contribution to Guj development has been widely accepted & commended, but his success was due to BJP’s dominance of power in Guj


As many recent well argued articles and recent data show, Gujarat’s growth story has been hyped out of proportion.  Its actual growth rate in agriculture for instance was half of what the Govt claimed.  Even on overall growth, Tamil Nadu and Maharashtra, with an industrial base larger than Gujarat have chalked up higher growth.  So has Bihar though from a lower base.


The point here is, States large and small, well governed or not, ALL, repeats ALL, have done significantly better in the 2001-2010 decade than in the decade before.  It wasn’t just Gujarat, or Maharashtra or Tamil Nadu or Bihar.  And if all states have done well, why should good performance in Maharashtra or Tamil Nadu be attributed to reforms, but in Gujarat to Modi’s excellence as an administrator?  If all are doing well should we not attribute all good performance to reforms?  Why this special love for Modi but not the other CMs?



5.Post-2014, BJP is going to be one among equals at the Centre.It wld not have a dominant hold on policy-making & implementation


6. Inter-party compromises& accommodation will be necessary.Will NaMo be able to make them & yet be effective.Such issues need to be debated


Excellent point.  Can Modi be a consensus builder?  Can a leader, who so polarizes society, carry a diverse nation together on such divisive issues like economic reforms?  Can Modi implement FDI in retail?



1.Cong has been perceived as weak in natl security issues, but overall it has a better policy culture & a better quality of leadership.


2.Cong understands better inevitability & inexorability of compromises & accommodation.ABV did in BJP, but not others


3.On basis of my limited knowledge & understanding, I feel RG has not been able to mobilise & galvanise.Time to give PG a chance.FINI


On the last 3 tweets I have nothing to say except to point to  the implicit acceptance of RG or PG’s claim to lead the Congress.  This “realist school of politics” accepts the “dynastic principle” as inevitable if not necessary.  Likewise, the realist school of politics also accepts the politics of “pogroms” of the sort we saw in 1984 or 2002 as an inevitable if not a necessary evil.


Try as I might, I can simply not accept either the necessity or the inevitability of either.  If we are to be democracy then we have to be seen to be  trying to live by its standards whatever the difficulty involved.  Else it becomes just another empty slogan.


Now if a normal person were to express these views they would be taken in stride.  Coming from somebody who was close to the heart of government, they are jarringly regressive.


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MARKET NOTES: The Greek will vote with their heads, not hearts

June 17, 2012 1 comment

MARKET NOTES:  The Greek will vote with their heads, not hearts



Dollar Index [DXY]:  To my mind the most important development in the word markets were the signaling of a correction to the value of the Dollar.  One may recall that DXY entered its just ended bullish run in May 2011 at a level of 72.86.  The top of the bull run was marked by a high of 83.67 achieved on 1st June 2012.  The failure to penetrate this overhead resistance, which corresponds to a high made in August 2010, has triggered a correction.


DXY has since corrected and closed the week at 81.6050.  It could find some support at the 81.50 in the ensuing week but the trend has reversed and the first target is 80.5 followed by a deeper target at 78.  However, the 78 levels may take a while to achieve.  We can expect the DXY to consolidate above 80.5 for a week or two before breaching the 80.5 level.


DXY bullishness over the last 1 year has been the key driver behind the reversal in asset prices over a range of commodities and equities.  It acts with a lag though.  Since we are in the very early stages of a correction, it is hard to see how other asset prices will react.  But the downward momentum in their prices should abate.


Unless, the trend line running through the just ended bullish run [drawn by connecting the lows of 29th August 2011, and 30th April 2012] is significantly breached, the ensuing correction should be seen as normal correction that doesn’t end the bull run.  Therefore, over the longer term, DXY continues to remain bullish.



Euro$ [EURUSD]:  The Euro$ is crucially positioned at 1.2636 having made a low of 1.22869 during the previous week.  The Greeks are voting in an election just as I write this blog and the results could have a significant bearing on the direction of the next lurch in the Euro$.  But the charts have story to tell and I read charts not events.  So I will just stick to what the charts are saying.


Barring a lurch back to 1.2250 in the next few days on an adverse Greek result, the charts say we may at the end of a bearish run the Euro$ for now.  That reading ties in with my read on the $-Index above.  If my wave count for EURUSD is correct, we are now entering a fairly violent upward correction in the EURUSD pair that could last for a while.  Excluding the reflexive jerks for any adverse Greek result, the Euro can head for the 1.32 level once the 1.2650 level is taken out.


So while not ruling out another short lurch to the downside, I dare say the Euro needs to correct and consolidate well above 1.26 for an extended period of time before deciding where it wants to go.  Going by the charts, the doom and gloom on the break up of the Euro appears highly overdone, whichever way the Greeks vote.



Gold:  Broadly speaking the correction in gold that began in September 2011 is over in terms of price though it has 2 to 3 weeks more to run in terms of time.  Gold closed the week $1626.26 after having made a low of 1561.44.


The last two weeks of an extended correction are impossible to predict which is why wave 5 failures are notoriously common.  So it is impossible to predict if gold will retest $1522 in the next two weeks.  It could, but there is certainty that professional traders will give retail investors such easy buying opportunities.


On a breach of 1650, the probability of a drop back to 1522 recedes into nothing.  Below 1650 there is some hope for another buying opportunity.  Investors can buy gold in their comfort zone with a stop loss placed just below 1520.  Barring the last lurch down I am now officially no longer a bear in gold.



Long term, gold will almost certainly take a shy at its previous top of 1920.  We won’t know what it intends to do there just as yet.  Mind the climb to 1920 will neither be smooth nor one way.  The pull back may provide clues to its nature [reactive or impulsive] as it is transcribed on charts.



WTI Crude:  As discussed in the last post, NYMEX crude had a medium term target of $76 and that continues to be the case.  Maintain my view that what we are seeing is a “cup & handle” correction to the crude rise from 32.5 in August 2009 to high of 114.18 in April 2011.  Crude continues to be bullish long-term.


The question of course is if crude will definitely hit 76 before turning up.  The correction in DXY discussed above reduces the probability somewhat.  The target of 76 should remain in place unless crude turns around and takes out $90, an unlikely possibility.


India should note the respite in crude prices that we are enjoying is a fleeting opportunity to reform the POL sector painlessly.  It is highly unlikely that the low crude prices will last beyond September this year.  In fact they could turn up from $80 level itself some time in July.  Pity nobody is accountable in GoI for missed opportunities.



$-INR:  The $ appears to be consolidating above 54.3 and below 56.5 as expected.  It closed the week 55.3850.  As discussed above, the $ has now entered a correction, and hence the pressure on the INR stemming from $ appreciation in the world currency markets should abate significantly.  The charts do not presage any Greek tragedy.  So the correction in the value of the $ in Indian markets should continue for quite sometime.


With trading curbs in place and a whole host of restrictions, RBI could use the respite in the currency markets to lift them one by one.  It would be a mistake to let the $ fall below 54.3 in my opinion.  RBI would be well advised to mop any excess $ at that level to build up it reserves.  The $ should stay above 54.3 until government takes adequate policy measures to shore up exports, remove barriers to FDI and FII flows and gets its fiscal deficit under control.  POL pass through has been too small.  Without reforms there it would madness to let the $ fall below 54.30.




S&P 500 [SPX]:  SPX closed the week at 1342.84, pretty close to its high for the week at 1343.32.  As discussed in the last blog post, we are in the middle of a pull back in the US equity markets after its recent low 1267 in the first week of June.


In theory the pullback has a target equal to the previous top, which is 1422.  But considering the distance retraced so far, the probability it will get there is small.  The index has an overhead resistance at 1350.  A breach of that level would be significant but is unlikely in my view.  On turning down from 1350, the index could retest 1270 again.  Not bullish on US equity markets for now.



NIFTY:  As discussed in the last blog post, Nifty had a target of 5168 in this rally from 4770.  A breach of that level to the upside would be very surprising.  We are in the last leg of the current correction from the top at 6240.  Sharp rallies cannot be ruled out at this stage.  On the other hand for a convincing end to the current correction NIFTY needs to establish 4500 as firm inviolate bottom and that can only happen by retesting it.


Either way, logically the market should turn down from 5168 and then the fall from there to 4500 would be a good time to accumulate blue chips on the Indian markets.



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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Why do we blame the victim of a rape?

ANALYSIS : Why do we blame the victim of a rape? — Sonali Ranade


If the law does not exist, or will not work as it is supposed to, then the onus falls on potential victims to take all such precautions as may be necessary to safeguard themselves
Rape is a cognizable offence in most places in the world, which means it is an offence that should be investigated and an action taken against the offender, irrespective of whether the victim complains about the crime or not. Yet studies show that nine out of ten rape victims do not report the crime, and cases abound where the police, press and society drag the victim of a rape through filth when she dares to take the case to court. Some of the mudslinging is no doubt a part of the defendant’s defence against the crime. A variety of other factors explain the perverse police behaviour. The thing that puzzles is society’s reaction to a reported crime. Far from supporting a victim in her hour of travail, we are busy ‘explaining away’ the crime, what the victim could or should have done to avoid it. One way or the other, the central fact in the discourse that rape is a crime and the girl was the victim, is obfuscated. What explains our attitude?
Recently I was summoned home for a family council. As it turned out, the powers that be at home were more than a little concerned about the unwelcome attention that my ‘tweeting’ over Twitter was attracting from certain quarters. There was nothing wrong with what I was doing. To be involved in advocacy for economic reforms or to have a considered view on social and political issues was not only legitimate but also worthy of appreciation. Even writing on such issues was reluctantly conceded praiseworthy, even if it was a little out of the way considering my present experience and station in life. But all said and done, would I please tone down things a bit? My tweeting was making waves, drawing unwelcome attention, and exposing me to unspecified hazards that could cause severe problems down the road, not only for me but for others around me. As an intelligent and responsible person, I ought to know the difference between what is right, and what is customarily acceptable. There is, after all, a Lakshman rekha that one may not cross. What had I to gain from such ‘public’ advocacy anyway? There are no medals for heroes or heroines in our society.
That concisely is the conversation that takes place in many homes. It captures the essential difference between what is legitimate on the one hand, and what is not legitimate but still the customary norm in our society. Where does the dichotomy come from?

That the justice system of which the police are a part does not work for rape or other victims is no accident. In any such case, the police have no incentive to favour the victims. On the other hand, most rapists will pay a fortune to get off lightly. Hence, the battle for fudging details, introducing ‘mitigating circumstances’, and establishing ‘partial connivance if not consent’ on the part of the victim, begins from day one. This ambiguity serves everyone well except the victim who picks up the ‘blame’ for the crime even before it is investigated and brought to trial. In most cases, police themselves deliberately create ambiguity for shaking down the rapist for money. However, that is not really the issue here. What concerns me is society’s indifference if not hostility. Where does that come from?

The justice system has not been dysfunctional since independence. If you go back in our history, then for perhaps some 500 years and more, very few parts of India ever had a credible justice system to begin with. Law, such as it existed, was capricious, dependent on the whims and fancies of the local tyrant and his court officials; if you were not of the nobility or the upper caste or class, your access to justice did not exist. Our society’s customs and practices over the millennia arose in such a milieu. If the law does not exist, or will not work as it is supposed to, then the onus falls on potential victims to take all such precautions as may be necessary to safeguard themselves. Hence, we keep our girls indoors or in purdah, deny them an education that may expose them to risk, and draw up all sorts of restrictions on their personal freedoms. Naturally, if a girl violates those customary restrictions, we have little hesitation in blaming her for the initial violation. Surely, if she was sensible and knew the rules, she knew better than to violate them and ‘invite’ the rape. Her fault.

Worth noting is this is not specific to just rape or other abuses. The tyranny that our ancestors faced have left deeply embedded scars on our society, which the modernity of the last 65 years has not yet uncovered, let alone addressed and repaired. You see this lack of faith in government, distrust of society and a reluctance to get involved in community projects and goals over vast swathes of our public life. It is manifest in our behavior in queues at bus stops. It is evident in the small liberties we take with the law every day. We do not expect others to obey the law or rules, so the smart thing to do is to break them yourself first. The same distrust of government and authority marks our trust in gold rather than government bonds, not today but through the millennia. It is the lack of trust that prevents us from effective collaboration in workplaces, communities or public life. It is the same unreliability of others that compels us to build needless redundancies in our systems and ways of working. It is the same inability to take anything for granted that adds layers and layers of unnecessary costs throughout the economy that makes most of our products, except direct labour, uncompetitive in world markets. Our doctors or software engineers may be the best, but we cannot produce either good software or good healthcare to compete in world markets because our systems are so capricious and unreliable.

No police force can prevent rape by guarding all potential victims. The justice system works by deterrence. It is a fallacy to think that deterrence is aimed at the five percent criminally inclined elements in our society. It is not. Deterrence is instead aimed at the 95 percent of normal people to prevent them from giving in to an impulsive violation of the law because others are doing so with impunity. You cannot deter the bad apples. You can only weed them out. The law and justice system are instead aimed at keeping the good apples good. For some strange reason, our intellectuals have forgotten this elementary purpose of the law. Instead, in just about every crime that comes to trial, we rush in to examine the perpetrator’s motivation, compulsion, circumstances and instinctively empathise with the perpetrator who mysteriously now turns into a ‘victim’ of the justice system.
Does that inversion ring a bell? Yes, the same syndrome — our deep-seated distrust of authority and government — turns the rapist into a victim. If capricious authority is now prosecuting someone, that someone becomes the new victim. We are oblivious to both the original crime and the original victim’s distress. The need to punish the perpetrator, not because we seek vengeance, but because we must deter others from committing the same crime is not even a part of our discourse.

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

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