Home > Uncategorized > MARKET NOTEs: 23-09-2012. The rally continues but avoid chasing it.

MARKET NOTEs: 23-09-2012. The rally continues but avoid chasing it.

MARKET NOTEs:  23-09-2012.  The rally continues but avoid chasing it.


Gold [$GOLD]:


Gold closed the week at $1772, a new high in this rally and continued to be at elevated levels as expected.  Gold could rally to $1800 or thereabouts where it faces a major overhead resistance that would be difficult to pierce immediately.


The real debate in gold is if the current rally is a resumption of the bull run or is there more correction to come.  Wave counts and durations of previous correction favor more correction to come although the pullback so far indicates that the possibility of a break below $1530 is now fairly remote.  The run up to $1780/$1800 is overdue for a correction.  The shape & size of the ensuing correction will tell us if the correction is over.  In my view the probability of another buying opportunity in gold before the end of May next year is fairly high.


Silver [$SILVER]: 


There is little change in Silver charts.  The metal closed the week at $34.49.  Silver could rally to $37.50 but Silver chart is a little less ambiguous than the gold chart in indicating that the present rally is not the resumption of the old bull-run.


The rally in Silver can terminate at any point with little notice.  Its 50 DMA is approaching the 200 DMA in the $31 region and Silver could rally on until a golden cross is triggered.  That’s happened before & sets up a nice little bull trap if coupled with a ferocious rally to $37.50.  The rather early corrections in Silver point to such an outcome.  So traders in Silver might get an opportunity to sell above $37 with little risk if things pan out.


Watch this space!

WTI Crude [$WTIC]: 


Crude once again proved how treacherous the market in oil can be crashing in 3 days by over 10%.  Crude closed the week at $92.89.  As tweeted on twitter a quick pull-back above $92 followed by a close over its 50 DMA will indicate that the correction we just saw was normal & to be expected at the end of a fairly sharp bull-run from $77 to $99.


The question really is if the drop to $91 was the end of a correction or the beginning of one.  Crude presents a picture where both outcomes are possible.  However the probability of a fall below $90 in both cases is fairly low.  Only the degree of bullishness changes with the different scenarios.

The pull-back in crude should take it to just under its 200 DMA in the $97 region.  Buy the dips in crude.


US Dollar [$USD]:


Reproducing last week’s chart of the US Dollar with updated prices.  As expected, the $ turned up from the 78.50 level to close the week at 79.40.  While lurch down to 78 level can’t be ruled out, the earlier possibility of a drop to 76 level now looks a bit remote.


Wave counts indicate that the present drop to 78 level could be the end & not the beginning of a correction in the Dollar.  If so, the $ should rally fairly quickly above its 200 & 50 DMA now coming together in the 80.50 region.  The currency’s price pattern over the next few days should offer a clue if a rally to 80.50 is on the cards.  The $ could correct before piercing 80.50.


A convincing close above 81 level would almost confirm that the bull-run in the US currency is resuming.  Not bearish on the $ & advocate buying dips.


Euro$ [$FXE]:


The Euro rallied past its 1.30 resistance but never got much beyond 1.31.  It closed the week at 1.2979 after hitting a high of 1.3124 earlier in the week.


The Euro could correct down to 1.27 over the following two weeks.  While the pull-back in Euro is far from over, the rally up may be jagged and punctuated by sharp corrections.  The current correction could however set up a base for the rally up to follow.  The probability of a fall below 1.27 can’t be ruled out either.


Euro$ will remain very volatile as it builds a base for a rally in the next two months.


Dollar – INR: 


With the drop to just above 53.30 the $ signaled an intermediate correction against Rupee that could last for a few months.  Note R53 is the Dollar’s 200 DMA area and the currency is testing the validity of its long term bullish trend against the Rupee.  Next week’s trading in Indian markets could be crucial in setting the long term trend.


It is highly likely that the 200 DMA will be taken out during the course of next week after a short pull-back and the $ may look for support in the R52 region.  Pity RBI appears to have learned no lessons.  It may let the Rupee appreciate against the $ instead up mopping up the $s to build reserves.  RBI policy is simply not focused on job creation at home which is a serious flaw in exchange management.


S&P 500 [SPX]:


The rally in S&P 500 is running on an “extension” at least since the top of 1400 at the end of March this year.  That is to say, the fall from 1410 to 1270 in my view was impulsive and the subsequent rally is a bounce prior to a rather longish correction in the market.  That is not uncommon at the beginning of a correction.  That being so, the rally in SPX can terminate pretty abruptly at anytime.  Indeed it could have already terminated!


With that caution, note SPX closed last week at 1460 and its next resistance lies at 1500 followed by the previous top at 1580.  Can the SPX make a bid for the previous top?  Frankly, did not think the rally could stretch this far beyond 1430 though a bounce higher that 1410 from 1270 was possible on the cards.  Nothing can be ruled out in these crazy treacherous markets with CBs inflating asset prices.  But reason says the rally should terminate fairly soon.  However hold the selling till a reversal is confirmed.


NASDAQ Composite [COMPAQ]:


Of all the US equity market indices, NASDAQ Composite is the one that made a long-term bottom in March 2009 and is in a new bullish uptrend that “should have” topped at 3140 in April this year but is running on an extension like its peers.  How far could NASDAQ extend?  The answer varies but the extension could last well into December on one reckoning.  There is nothing on the charts that indicates a reversal of the rally from the low of 2727 in June this year.


For position it is better to take profits based on individual stocks rather than watch the index levels which are on an “extension” due to short-covering by early bears who went short at the logical top.  Yes there could be new highs but chasing them is fraught with risk.  In any cases protect your longs with tight stop losses.  These are very treacherous markets that are defying needed corrections.


Sensex [$BSE]:


Sensex closed the week with a huge rally to end the week at 18,752.  There is little on the charts to show that the rally is anywhere near exhaustion despite being overbought.  The next resistance for the index lies at 19,100 followed by a more substantial one at 19,800.


As mentioned in the blog last week, this rally could take a shy at the previous top though logically it should stop in the vicinity of 19,800.  Protect your longs with tight stops.  This rally too is now on an “extension” brought about by “reforms” which were very late in coming.  So short-covering apart, the case for fresh buying at these levels doesn’t exist.  Stick with your blue chips bought at lows earlier.


Don’t chase the rally.  It can terminate with little notice.


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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