Archive for August, 2012

On orders from High Command

August 30, 2012 Leave a comment

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Chattisgarh Eliminates Farmers’ Suicides for BJP

August 29, 2012 1 comment

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Are Agricultural Commodity Prices Peaking Out? [26-08-12]

August 26, 2012 Leave a comment

Are Agricultural Commodity Prices Peaking Out? [26-08-12]



Reuters CRB Index:



The Reuters/Jeffreies CRB Index all commodities including grains, metal, oil and ores.  As such, agricultural commodities are only a part of the overall commodities market.  Nevertheless, it is helpful to be able to put agricultural commodities in the context of the general commodities market.


The weekly chart above, puts the recent rally in commodity prices in the context of the correction in commodities that began in April 2011 from a level of 370.  The index closed the last week at 307, about 63 points below its 2011 peak or about 17% below the previous peak prices.


Prices in the current rally have moved up from a low of 270 to 307 or approximately 14%.  Has the rally peaked out?  From the chart above, one could surmise that we are very close to the peak and may well be for another leg to the correction that commenced in May 2011.


In short, this is not the time to be chasing commodities with the bulls.


Corn [$CORN]:



While the pattern of price correction in corn more or less matches the pattern in the general commodities index, it not as bearish as the former.  Corn peaked at just under 800 in May 2011 but has made a new high of 809 in the current rally indicating underlying buoyancy in prices.


Corn could correct along with other commodities from current levels.  Corn is over-bought on weekly chart and the next correction could well take it back to $600 or so.  It is time to book profits in corn along with other commodities.


Soybean [$SOYB]:


Soybean illustrates the bullish bias to agricultural commodities in clear contrast to the bearish bias in the general commodity markets.  Soybeans were $1475 in May 2011 but have topped $1731 in the current rally.


Nevertheless, it may be time to take profits off the table in Soybeans as well.  It is highly unlikely that Soybeans alone will defy a market wide correction in the commodity markets.  SOYB could drop 1475 in the ensuing correction.  If so that would be very bullish for the lon-term in the commodity.


Wheat [$WHEAT]:



The weekly wheat chart again illustrates the bullish bias to agricultural commodity prices in contrast to the general commodity prices.  Wheat peaked at $888 in February 2011 and made a new high of $940 in August this year.  While a correction in wheat prices is not ruled out, the correction may be relatively shallow.  Look to take profits in wheat as well.



Sugar [$SUGAR]:



Sugar is in a long-term down trend.  From a level of 0.34 $SUGAR has declined to 0.20 and the bottom doesn’t appear to be in just as yet.


It would be premature to anticipate a bottom in $SUGAR.  But one would expect a bottom to be in by end of the year.



Rough Rice [CBT]:



Rice is one of the major food crops that has been in major down-trend April 2008 and probably hasn’t bottomed out.  From a level of $25 at the peak, the price now stands at $15.5.


The correction in Rice may continue.  Long-term trends indicate a bottom by the year and about $12.







Cotton is the big surprise in the Agricultural commodity markets.  Clearly Cotton has bottomed out at $68 and looks all set for a new long term bull run.


The confirmation of a major tradable bull run will come on Cotton rising above $85 and successfully challenging its 200 DMA which is currently in the $90 region.  The logical target for the rally would be the previous of $225 minimum.


Cotton appears well worth tracking for a bullish play.  Hope Indian farmers take note of the development.

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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MARKET NOTES: Treacherous markets ahead

August 25, 2012 1 comment

MARKET NOTES: Treacherous markets ahead.




The gold rally was late in coming but has finally turned up fairly strong.  Gold pierced through its 200 DMA around 1648 and closed the week at $1669.90.  The question now is [a] is this bullish breakout and [b] where does gold go from here.  The answer depends on your preferred wave count and is likely to be hotly contested in the market whichever way it goes.


The bullish case rests on the assumption that gold has corrected in an orderly A-B-C wave structure from the top of $1920 to the low of $1527 and therefore the correction is complete.  In that case, the sharp breakout atop the 200 DMA is genuinely bullish.  If so, Gold should correct down to $1650 soon, and upon the price holding above the 200 DMA, should signal a new bull rally in gold.  This scenario is quite possible.


The bear case rests on the assumption that the correction down from the top of $1920 is in fact the start of a bear market in gold and therefore the correction should have another leg to it.  In short we are in wave 4 up of the first impulse wave down and the break atop 1648 is merely a bear rally.  I favor this view unless proven otherwise by price action.


Sometimes, as a trader you should let the markets resolve issues without taking sides.  I would wait for the market to retest the 200 DMA before taking a fresh view of the price action.  In passing one may note that most commodities are approaching peak-out points and metals may well join the herd.  In such a case gold may well coast along at the current price without going significantly higher than $1700.





Silver has rallied in sympathy with gold.  It closed the week at $30.78 a touch above its 200 DMA which is the $30 area.  Silver could rally to $32 whereupon it hits the long-term, downward sloping trend-line that has capped previous bear rallies.


Silver has followed a significantly different trajectory in its current correction than gold.  It wave structure is also quite distinct from gold.  The counter-trend rally in Silver could be a jagged sideways movement between $35 & $30 for some weeks.  This also means that later in the correction one could see the down-sloping trend line also violated.


By no means bullish on Silver.  But the metal has signaled a counter-trend rally that could have treacherous swings.  It is best to sell very strong rallies to the upper band of $35 and buy the drops.  Long term shorts should be avoided till the rallies show clear signs of exhaustion.  Note Silver is overbought.




WTI Crude:

WTI crude closed the week at $96.15 a touch below its 200 DMA which it pierced through on 21st August.  A quick retest of the 200 DMA augurs well for continuation in the crude rally.


As per my wave counts, on a successful retest of the 200 DMA from the topside now underway, crude could rally to $100 in the next week before going into a correction.  The probability of overshooting the $100 target is fairly high.




A significant correction in crude prices may have to wait till after the price rallies above $100.  Crude remains a buy on dips.






US Dollar:



The Dollar closed the week at 81.36 after having made a low of 81.22.  In my opinion, the first leg of the price correction in the Dollar from its recent top of 84.30 is over.  In terms of time, the correction still has some way to go.


Note the index’s 200 DMA is positioned at 80.75 while the upward sloping trend-line marking the current rally is well above the 200 DMA.  The Dollar has been supported by the trend line and not the 200 DMA.  Further the Dollar is oversold.


During the ensuing week the Dollar could retest support against the rally’s base trend-line and rally to its first overhead resistance at 82 followed by a higher target at 83.





Euro closed the week at $1.2511 after having made a high of $1.2526.  The current rally in the Euro is marked by very high level of skepticism and has seen very sharp corrections.  Nevertheless, on the charts there is no indication that this rally is over.


In the ensuing week the Euro could rally further to test 1.27 level.  It is the Euro’s reaction to the 1.27 area of prices that will reveal clues to where the Euro wants to go.  While not bearish on the Euro I would not buy the dips.  Currency best avoided until a clear decisive break atop 1.27 or a decisive breakdown from there.





The US Dollar closed the week at 55.49.


The $ has been in a correction ever since hitting the top of 57.30 but this correction has played out in the triangle shown in the chart above.  Three things may be noted in the chart.  Firstly, there is nothing bearish in the charts.  The $ is well above the 200 DMA, its rally base trend-line and more or less on its 50 DMA.  So the long-term trend up remains intact despite the correction.  Secondly, the pennant shaped triangle is usually a trend continuation signal that confirms there is no reversal in basic trend.  Lastly, within the triangle we have an A-B-C-D-E wave pattern, and we may be nearing E as the triangle terminates.  In short we are due for a break out from the triangle very soon; possibly in the ensuing week or the next.


Which way will the $ break out?  The odds are highly in favor of the main trend which is up.  Wait for confirmation before buying the Dollar.  On a break-out first target would be 56 and on confirmation of an upside from there, the previous top of 57.3 beckons.  A break below 55 invalidates the above scenario.


NYSE Composite:



NYSE Composite closed the week at 8048, well below the high of 8167.  Is the rally over?


First note that the previous two highs of the NYSE Composite were 8336, preceded by 8691.  The top made last week at 8167 was lower than both.  So the index remains in long-term bear trend right from the top of 10,367 in August 2007.  We are in a mega-bear market if you go by this composite index which includes all the stocks listed on the NYSE.  That fact should be always kept in mind while looking at the narrower US indices like the DOW or even the S&P500.


Where do we go from here?  Barring a highly unlike flare up again, the first target for the NYA is 7900 followed by a retest of its 200 DMA which is currently in the 7850 region.


Note I expect the long-term trend-line stretching from the March 2009 low to the low of 7265 in May 2012 to be tested and possibly violated before a further rally in the index.


The corresponding downside target for S&P500 then is the 1360 area and it is the market’s response to prices in this area that will set the further trend in US markets.


On the whole expect a very treacherous markets as the price levels could be driven purely by the technical play between bulls & bears as the new trend is established.











Sensex closed the week at 17,783 after having made a high of 17,972 the previous day?  Is the rally over?


The fall on Friday was a clear violation of the rally’s base trend-line stretching from the low of 16,598 on 26th July.  That doesn’t terminate the rally but it does throw up a cautionary flag.


In the weekly chart above, the rally has room till 18,500 in terms of price and a week or two in terms of time to reach for a higher mark.  Whether it will get there or not is difficult to say.  But we are approaching a significant overhead resistance that can terminate the rally.  Structurally, there is nothing bullish about the market in the medium or long-term.  It is best to get out while the going is good.



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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MARKET NOTES: 18.08.2012. Equity markets continue to be toppish

August 19, 2012 Leave a comment

MARKET NOTES:  18.08.2012.  Equity markets continue to be toppish


Gold [$GOLD]: 


The pull-back in gold from the low of $1526 in May this year has been exceptionally weak.  Gold closed the week at $1615.30, well below its 200 DMA which is currently at $1645.  One would have expected gold to at least challenge the 200 DMA and rally to perhaps $1660 region.  But it did not happen, a fact which points to future weakness ahead.

As per my wave counts, the time cycle for a pull-back is exhausted and we could see weakness reassert itself in the gold price going forward.  In the ensuing downturn that could last months, I expect the floor at $1525 to be severely challenged and possibly be breached.  Note that all through the pull-back period the traded volumes in gold have been declining.


WTI Crude:

I have been bullish on WTI crude the past few months and it did not disappoint closing the week at $95.23 after making a high of $96.  Crude has had a long rally from the low of $77 in July this year $96.  It is now showing signs of an impending correction although the shape and size of one remains indeterminate.  In a very strong uptrend such as the one under way in crude, corrections can be perfunctory.


On the charts above, traded volumes have not matched price action, while the price itself is all set to challenge the overhead resistance represented at crude 200 DMA.  The RSI shows crude is overbought.  Taken together, these factors point to an imminent correction in crude price.


US Dollar [$USD]:

The Dollar Index has entered a correction mode from its recent highs at 84.14.  The correction has weeks to run yet and the price action could be fairly choppy.  The first major logical target for this correction remains 81 followed a deeper floor at 80 which also is the Index’s 200 DMA that is unlikely to be breached.

Dollar could spend the ensuing weeks in the 81-83 range.  Trading is best avoided in the ensuing sideways market with limited price range.  However, in the medium and long-term, the Dollar remains bullish and may be bought on dips to its 200 DMA whenever that happens.


Euro$ [FXE]:

The Euro’s correction to the run up to $1.2450 from its recent low of $1.20 has been rather mild and may be over.  The Euro closed the week at $1.2330.

The Euro remains in an uptrend with first major overhead resistance at $1.24.  Note traded volumes in the Euro favor upticks in price while its RSI is in neutral zone.  Its 50 DMA is around 1.23.  In the ensuing week, the Euro could aim to take out the 1.24 resistance and fill the gap in the charts between 1.23 and 1.25.


The above doesn’t mean long-term bullishness in the Euro.  But the upward correction will provide clues to the future shape of the price movements in the currency.  The ultimate target for this uptrend could be 1.27 to 1.28.



After its recent high at 57.30, the Dollar has been correcting but the correction has been unusually mild considering the sheer run up before the top.  That leads one to believe there could be further upsides to the Dollar against the INR after a period of consolidation.

On the charts, the Dollar is ambiguously positioned in the short-term.  The next few trading sessions could resolve the ambiguous picture.  The level on the upside is 56.20.  On a breach of this overhead resistance it would be safe to assume that the correction is over and the uptrend has resumed.


A breach of the floor at 55.40 would indicate some more period of consolidation.  Either way, the Dollar remains a buy on all dips since the uptrend in the Dollar is unlikely to have been exhausted.  Remain bullish in the long-term.


US Equities: 

From time to time, it is good to see the broad market in order to place the movements in narrower Indices in a larger perspective.  This is necessary since authorities periodically remove under-performing stocks from the major indices and replace them with better performing stocks that gives the major indices a bullish bias that may be lacking in the broader market. The NYSE Composite Index is the universe of all stocks listed on NYSE.


In the rally underway, note traded volumes decline even as prices move up.  That’s a dangerous divergence by itself towards the top of a rally.  Note also that the index is now in over-bought territory but not by a margin that indicates an imminent correction.  Lastly, note that the price is now up against on overhead down-sloping trend line through the previous two tops that indicates a major resistance overhead.  Such trend lines are rarely breached except by a small nick for a short time.  All of the above point to an imminent market top.  It could happen in a day or weeks; but we are pretty close to one.


Having looked at NYSE Composite, take a look at the S&P 500.  First, SPX closed at 1418.16 which is pretty close to the previous top at 1423.19.  In a major downtrend like the present one, previous tops are rarely breached.  Second, traded volumes in the blue circle show a disconcerting trend downwards even as the index moved up.  That doesn’t indicate a healthy rally.  Lastly, note the RSI which indicates an overbought market though not dangerously so,


While the price action in the SPX is clearly not as bearish as the one in NYSE composite, the other crucial parameters bear out the bearish bias of the composite index.  In my view the US equity markets will soon run out of steam.  Maintain my earlier view that the US markets are very close to a top.



The Sensex broke atop the downward sloping trend-line connecting previous tops in the current down-trend.  Its 50 day DMA has just crossed above its 200 DMA – a golden cross though folks in Mumbai don’t pay this that much attention.  And the Sensex itself closed at 17,691 atop the downward sloping trend line.  All in all pretty bullish price action, that.

While the rally could extend in time and price to 18,500, I am not sanguine about the sustainability of this rally despite all the breakouts, golden cross-over and the like.  There are many reasons to be skeptical of this rally.  I shall briefly point out a few things to substantiate my point.


The Sensex is a pretty narrow index.  In fact it is just 30 stocks compared to the 500 in the S&P 500 which itself is much narrower than the total markets represented by the NYSE Composite in the US.  And we saw the divergence between SPX and NYA in the note on US equities.  We don’t have a composite index for the BSE or NSE.  So I have used the BSE 500 to study the divergence between the Sensex and the broader market.  Note BSE 500 did not make a new high or even come close to the 2008 top in November 2010.  So the broader Indian market is in a firm, long-term down-trend from 2008 as per the BSE 500.


The BSE 500 wave count is much clearer than on the Sensex and indicates that the present rally is merely a correction to the drop from 8460 to the low of 5655.  We may have a week or more to run with the uptrend and the Sensex could try for 18,500 but the current rally is not the beginning of a new bull markets.  For that more time & price correction is necessary.


Within the Sensex, the financial sector presents which is about 30% of the market-cap, presents divergent trends.  The private banks including institutions such as HDFC are showing strength in the counter-trend rally, while the PSU banks show major weakness across the board.  In both the cases, the correction has lots of time to run.  Remember that the financials in the Indian market peaked in 2010 and not 2008 with the other stocks.


That said, a few major stocks like RIL, HDFC, HDFC Bank are poised at crucial junctures that could indicate the strength left to fuel a further counter-trend rally.   On the other hand, PSU banks should be watched for weakness to assess how far this rally can go.


Apart from HDFC Bank, which continues in a strong uptrend, I would rather spend time accumulating good blue chips that indicate that prices have bottomed out.  This rally is not worth chasing.



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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PC rediscovers Congress maths

August 16, 2012 Leave a comment

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August 15, 2012 Leave a comment

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