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MARKET NOTES: The US equity markets look toppish

August 12, 2012 Leave a comment

MARKET NOTES: The US equity markets look toppish.

 

 

 

GOLD  [$GOLD]:

 

 

 

 

As mentioned in the last post, Gold was expected to continue its pullback to the vicinity of $1660 area on the charts, which it did all through last week, closing the week at $1617.14 after making a high of $1626.

 

The pullback can continue next week.  The metal’s 200 DMA, now sloping down, is in the $1650 area while its 50 DMA is at $1600, with the metal price sandwiched between the two.  The pullback over the ensuing week could test $1650 or even attempt a false breakout to the top.  It is unlikely to convince anybody but the most gullible.

 

Wave counts show Gold continues in a fierce bear grip.  The last leg of the correction down can begin anytime after the next week or two.  Investors should avoid going long in the metal for now.  The downside target for the last leg of the correction could be much lower than $1550.

 

 

Crude [$WTIC]:

 

 

 

 

 

WTI Crude is in a very strong upswing in the early stages of what promises to be a fairly stretched out rally from its recent low of $77.50.

 

Crude closed the last week at $92.87 after having made a high of $94.72, which was a notch above its 200 DMA, which currently stands at $93.60.  The fact crude did not hold above its 200 DMA is hardly material at this stage since such things take more than 3 or 4 attempts usually.  Crude could find support on the way down around its 50 DMA, which stands at $89.25.  Crude is unlikely to get there and may rally much before that in an attempt to take out its 200 DMA again.  Crude remains a buy at all dips.

 

 

 

Dollar Index [$USD]:

 

 

 

The US Dollar has been correcting since its recent high of 84.10 made on 23rd July.  It closed the last week at 82.63 just atop its 50 DMA, which currently stands at 82.5480.

 

The Dollar’s 200 DMA is at 80.618 and in the current correction this area could be tested over the next two weeks.  The support is unlikely to be breached given the Dollar’s long-term bullishness.  On the other hand, a rally beyond 83 to the topside is unlikely.

 

Dollar would be a strong buy in the vicinity of its 200 DMA.  The 81.50 area is also a region of strong support for the Dollar.  Position traders should look for drops to supports to buy.

 

 

 

Euro$ [FXE]: 

 

 

 

 

The Euro’s failure to rally beyond 1.2750 in June betrayed great weakness in the currency.  It has been correcting since then and made a low of 1.2040, where it found support and rallied to 1.2450.  Euro closed the week at 1.2289.

 

The counter-trend rally in the Euro, jagged and weak as it is, is not over yet in my opinion.  The Euro could find support around 1.2200 and attempt a rally from there to 1.2450 and perhaps even beyond that.  However, any rally in Euro would be short-lived and subject to violent corrections.  While not bullish on the Euro, shorts should be avoided until the downtrend resumes and is confirmed.

 

$-INR:

 

 

 

 

 

 

 

The Dollar continued to consolidate in the Indian market between 55 and 55.50 over the last week.  It closed at R55.28.

 

My wave counts indicate the Dollar should rally from these levels to retest 57 in the near future.  Note that all through the current correction the Dollar has tested the 54 region only once.  I would have liked to see a more rigorous test of the region.

 

The probability of retest of 54 has now receded in terms of time.  The Dollar remains a buy at all dips in the Indian market.

 

A fall below 54.25 would invalidate my analysis.  A break above 56 will almost certainly confirm the prognosis.  Expect big moves towards the end of the week.

 

 

 

 

 

 

 

 

 

S&P 500 [SPX]: 

 

 

 

 

The S&P 500 index closed last week at 1405.98.  As expected, SPX cleared the 1390 resistance level fairly easily and then had a shy at 1405 level.  The next resistance lies at the previous top of 1422.  Will that be attempted and taken out over the next week or two?

 

Wave counts indicate two things quite clearly.  Firstly, there is little scope for the SPX to go anywhere beyond 1420 at this stage.  It could take a shy at that level but what lies beyond that?  Secondly, in terms of time, the rally from the recent low of 1266.74 is almost exhausted and a correction is due any day now.

 

In my opinion SPX is now toppish and traders should look for opportunities to establish short positions at every rally with a stoploss placed in the 1425 to 1430 region.

 

 

 

Sensex [$BSE]:

 

 

 

 

 

 

The Sensex’s 50 DMA once again pierced the 200 DMA on the daily charts generating a bullish buy signal.  It has given such signals before that turned out to be false breakouts.  Is it real this time?

 

In terms of wave counts, the signal could be spurious.  The Sensex could continue to correct over the next week.  It has multiple supports spanning between 17,000, 16500 and 15,500.

 

How far down the index goes is impossible to say.  Ideally one would like to see it go all the way to 15,500 before September end.  That may yet happen.  On the other hand, the market could stop short of that mark and stage a rally to 19,000 and then come down over a stretched out correction that follows.  The latter would give the market more time to catch up with fundamentals.

 

Either way, am not particularly bullish on the market overall.  But it bears noting that we are pretty much towards the end of a bear market in terms of wave counts and these are times to accumulate blue chips, not sell.  Look for buying opportunities without chasing stocks.

 

 

Shanghai Composite [$SSEC]:

 

 

 

 

The Shanghai Composite Index [SSEC] turned up from 2100 instead of the earlier low of 2130 more or less indicating that the Chinese market has put in low in that region.  The index closed the week at 2168.81.

 

The index has time enough to come back and retest 2100 before the end of August and could well do that over the next few weeks.  On the other hand, its 50 DMA stands at 2205.  That would be the first major resistance to cross in a rally.  It may be time to accumulate Chinese blue chips as well.

 

 

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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BPL Mobile Cross-connections

August 11, 2012 Leave a comment

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Modi’s Fair Exchange Offer

August 9, 2012 Leave a comment

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MARKET NOTES: The Fed did not add to the central bank created liquidity

August 5, 2012 Leave a comment

MARKET NOTES:  The Fed did not add to the central bank created liquidity.

 

 

Gold [$GOLD]: 

 

 

 

 

 

Gold continues in its complex correction and is currently compressing between $1530 on the downside and $1660 on the upside.  As mentioned last week Gold has the potential to test its 200 DMA area currently centered on $1660 and even nick it thereby triggering a “breakout”.  However, the wave counts indicate such a breakout, while possible, would be false breakout and the downtrend would resume shortly thereafter.

 

Gold closed the week at $1603 after making a low of $1586 which is its 50 DMA.  Expect Gold to drift slowly towards the $1660 area over the ensuing week.  However, in the intermediate term, the correction in the metal has sometime to run and is far from over.  Note however, that the charts indicate substantial short-covering is taking place around $1550.  Not bullish on the metal.

 

Silver [$SILVER]:

 

 

As mentioned in the last post, Silver is in an orderly pullback mode and should drift towards the target of $31 in the next few months albeit with fairly sharp corrections on the way.  Silver made a high of $28.4 last week, corrected down sharply to $26.94 and then closed the week at $27.10.  Expect similar jerky drift over the next few months towards $31.  Unless you are a compulsive trader, better to stay away from the metal over the next few months.

 

WTI Crude [$WTIC]:

 

Crude made a high of $92.94 the week before last, had an orderly correction down to $87 and then spiked up on Friday to close the week at $91.40.  Crude’s price action after the low of $77.28 on 28th June is very bullish.

 

Crude’s 200 DMA is in the $94 area.  Over the next week, expect crude to pierce through its $92 resistance to challenge $94 and the 200 DMA.  While not expecting a breakout at the first attempt, I continue to be bullish on crude.  On a break above $92, expect crude to consolidate between $90 and $94 for a while before moving up again.

 

Once crude breaks atop its 200 DMA convincingly, the slight hope that still animates India bulls will be squelched as the government continues to dither on petroleum price pass through.  Government of India has been subsisting on curious brand of “hopium” since 2004 when crude prices took off.  8 years of dithering have not taught it any lessons on the futility of hoping for reduction in crude prices.  Wonder when it will wake up to the new normal in commodity prices and debasement of the Dollar.

 

Dollar Index [$USD]: 

 

 

As mentioned in the last post, the Dollar is in correction and consolidation mode after a very long bullish run.  After having made a top of 84.2646 the week before last, the index moved down to close last week at 82.46 with sharp corrections in between.  Expect similar jerky drift down to continue in the ensuing week with the ultimate target of 81.  Not bearish on the Dollar in the long-term.  What we are seeing is a short-term correction in a normal bullish uptrend.

 

Incidentally, the Dollar Index 50 DMA is in the 82.50 area while 200 DMA is approaching the 81 area.  Both could offer support to the correcting index.

 

Euro$ [FXE]:

 

 

As mentioned in the last post, the Euro found an intermediate term bottom at 1.2040 on 24th July and is in a pullback from there.  This upward correction in the Euro may continue for a while.  During the week, Euro made a high of 1.24 and then corrected sharply down to 1.2132 before closing the week at 1.2385.

 

With this we can say that the bottom of 1.20 was retested during the week and the Euro held ground well above it.  A break above 1.24, the next resistance level will see the Euro aim for 1.2750 the next major resistance, albeit with sharp corrections on the way.  Barring corrections, expect a fairly strong upward bias in the value of the Euro over the next few weeks.

 

 

$-INR:

 

I was expecting the $ to come down and retest the R54 region before moving up again.  However, the $ made a low of R54.18 on 3rd July and followed that up with a series of higher tops and bottoms without really testing the R54 region again.  That could be interpreted as a bullish sign but I am not very comfortable with that interpretation.

 

Nevertheless, in terms of wave counts and time, we have run out of room for a correction down to the R54 region.  In the ensuing week the $ could drift up against the Rupee.  The first target on the upside is 56.50 followed by the previous top at 57.50.  While not expecting a new high at the first attempt, the possibility does exist.  Don’t be short the Dollar in the Indian market in the near term.   Whether or not the $ goes parabolic against will be know only after the $ retests the 57.50 region.

 

 

S&P 500 [SPX]:

 

 

The S&P 500 continued its incredible gravity defying act last week making unexpected highs despite sharp corrections.  The index closed at 1390.99 last week not far from its previous top at 1422.65.  The index has multiple resistances between 1390 and 1420 the first being at 1400 and the next at 1410.  The possibility of the index taking a shy at its previous top can’t be ruled out.  Whether it can sustain a break atop 1420 is a different matter.

 

It is hard to be bullish at this stage in the rally, especially given the sharp corrections and jerky nature of the pullback.  I would rather wait for the market to decide which way it wants to go as it attempts to regain the previous high.  My bias would be to sell at the top of the rally if it fails to make a new high over the next two weeks.  Mind the market could turn down on a dime from here.  Note also that volumes have not favored the up moves and have been decidedly heavier in falling markets.

 

Sensex: 

 

 

After making a low of 16,586 on 26th July, the index pulled back to 17,292 before falling again.  The index should continue to drift down with the first target at 16.500 followed by the 15,500 region.  If we are close to a true end of the correction in the Sensex, the index should accelerate its down-trend from here as the destructive tail end of the last impulse wave takes hold.  We have seen no evidence of that happening so far.

 

While one must recognize that we are towards the end of a long bearish trend, there is little evidence of the capitulation that is necessary for a confirmation to the end.  The next few weeks are crucial for a full capitulation without which it is hard to end such a long bearish spell that we have had.

 

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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