Archive for October, 2012

Cabinet Reshuffle

October 29, 2012 1 comment

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Gadkari’s Kitchen, Nagpur

October 29, 2012 3 comments

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MARKET NOTES: 27-10-2012 The much anticipated correction is here!

October 27, 2012 2 comments

MARKET NOTES:  27-10-2012  The much anticipated correction is here!


Gold [$GOLD]:



As expected last week, gold continued to correct from its recent top at $1795 to end the week at $1710.30.  While this correction is far from over, a minor pullback in prices is now due after which the metal could retest its support around its 200 DMA currently positioned at $1661.

The metal’s future trajectory will be determined by the market’s reaction to the metal around its 200 DMA.  Should the support hold, a robust rally in the metal can be expected which may see the metal retest its previous top in the next few months.

Gold’s test of its support around its 200 DMA will take weeks, not days.  The market’s reaction to the metal in the $1660 area will be critical.  A failure to hold support at $1660 will imply a fall to $1525.





Like gold, Silver too is correcting from its recent top at $35 and is now approaching its 200 DMA area in the $31 region.  It closed last week at $32.06.

The metal is due for a counter-trend pullback from the $31 area and could head towards $35.  However, the metal’s pullback from its recent low of $26 has been weak & unimpressive.  A pullback beyond $35-37 region looks highly unlikely which puts the metal in a long term downtrend.





WTI Crude:



Crude broke through my stop at $88 negating my last wave count which was bullish.  It closed the week at $86.28.

Crude has strong support between $84 and $86 after which the possibility of a retest of $78 level exists.  I could argue that the break below my stop of $88 by a small margin was something to be overlooked but will not do so because the breach invalidated my wave count.

Nevertheless, it is pertinent to point out that on long-term daily charts, the rising trend line from $35 in February 2009 through $78 in June 2012 is intact and my bullish prognosis on crude continues to hold.  I will not be surprised to see crude rebound from the $86 region.  However, absent a revalidated wave count, the probability of a retest of $78 cannot be ruled out.


US Dollar:



As expected the $ rallied in a counter-trend making a high of 80.350 against our expected high of 80.50.  The counter-trend rally is stronger than one expected and could continue in the ensuing week to test the 200 DMA currently at 80.54.

However, the correction in the $ from its recent top at 84.25 is far from over.  So the $ is likely to be capped around its 200 DMA.  Look to sell the $ at rally highs in the 80.50+ region.








Repeating last week commentary as it continues to hold!

As expected, the Euro$ continued to correct from its recent top at 1.3175 and closed the week at 1.3021.  The Euro did attempt a counter-trend rally from the low of 1.28 for the previous top but turned down well before that level.

Barring small counter-trend rallies, the Euro is now set for a retest of 1.28 level in the next few weeks.  If that level is breached decisively, the currency would unleash a destructive C wave its ongoing correction from the top of 1.5000 whose target could be 1.2000.

So watch the 1.2800 level like a hawk.  Keep a stop loss just above 1.32 for shorts.  A rally above that level will negate this analysis.


Euro$ should continue to move side to down over the ensuing week.  It closed Friday at 1.2939 after making a low of 1.2881.






As expected the $ turned down from INR 54, but contrary to expectations, has decided to consolidate above its 200 DMA at 53.15.

The $ could continue its consolidation above its 200 DMA for the ensuing week capped at the top by 54.  Rather difficult to see how a $ rally can build up from here without at least an attempt to retest 52.50.  Neutral on the $ until it either retests 52.50 or shows a robust base build up just above its 200 DMA.








With its violation of the rally’s base trend line, followed by penetration of the 200 DMA on Friday, NASDAQ Comp has flagged a reversal of the rally from the low of 2335 in October 2011.  The question now is the extent & duration of the correction.  Further has the rally from March 2009 low of 1244 been also terminated and reversed?

First support for Nasdaq Comp lies at 2950 followed by a more robust support at 2850.  Until 2850 is decisively violated, it may be premature to assume that the long-term rally from March 2009 lows is over.  In fact there could be a small counter-trend rally from 2950 before further declines are seen.

The correction in the NASDAQ will take a while to unfold and could continue March/April 2013.  Further confirmation would come on a violation of 2950 after a small bounce from current levels.


S&P 500:



S&P 500 has formed what looks like a triple top at 1474 and violation of the “neck line” at 1428 has confirmed a near term reversal in the index.  SPX has also violated the rally’s base trend line from the low 1266 in April 2012.

First support for the Index lies at 1400 followed by a more robust support at 1360.  One could see a modest bounce from first support but it’s unlikely to last long.  The index’s 200 DMA is at 1370.  Future trajectory of this correction will depend on the market’s reaction to the prices in the 1360/70 area.

Much like the NASDAQ, SPX too could be in a running correction to the long-term rally from the lows of March 2009.  SPX looks stronger than NASDAQ on current form.






Reproducing last week’s chart to show how NIFTY bucked the downtrend by consolidating above 5540 even as it kept in step with the correction in US markets.  Clearly, NIFTY intends to chart its own course although it may keep in step with US markets as far as direction goes while keeping the distance under its own steam.

The NIFTY could see a bounce from 5640 levels over the ensuing week.  The extent & robustness of the bounce will provide clues to NIFTY’s future trajectory.  That said, 5815 should be treated as a near-term top and the current fall a correction from that level unless proved otherwise.



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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Is the serious crack in the NASDAQ Composite index enough to reverse this rally?

October 20, 2012 Leave a comment

MARKET NOTES: 20-10-2012 Is the serious crack in the NASDAQ Composite index enough to reverse this rally?





As expected Gold continued it correction from the recent top at $1795 and closed the week at $1721, slightly above its 50 DMA.  The ongoing correction is far from over in terms of time and price although minor pullbacks from the trend will always be there.

From the price action so far, barring counter-trend pullbacks, the metal is headed towards a retest of the 200 DMA which is currently in the $1650 to $1660 area.  The metal’s reaction to that area will tell us if it intends to rally towards its previous top at $1920 or go into longer and deeper correction.  The balance of probability points to a possible rally to the previous top if the floor at its 200 DMA holds.  Watch that area for clues.





Like Gold, Silver too continued it correction from the recent top and closed the week at $32.05, below its 50 DMA which is currently positioned at $32.50.  Its 200 DMA lies at $31.20 and may provide support in the ensuing week.

Silver’s wave structure is unambiguously bearish for the long term and is distinctly different from that gold despite superficial similarities.  Upon taking support at our around its 200 DMA in the $31 region, the metal could rally again to retest $35.  But a rally of the kind in gold that tests the previous top $50 is not on the cards in the near future.

Upon a pullback from the $31 area, look for opportunities to sell in the $35 area.  But before let us see if the metal does take support at $31!


WTI Crude:



As expected crude continued its correction from its recent top at $100.50 and closed the week at $90.05 well above the baseline of the uptrend showed in the chart above.

Essentially, the correction in crude for the rally from $77.50 to $100.50 is over both in terms of time and price.  Crude should therefore rally upwards from its current level of $90.05.  Its first overhead resistance lies at $93.85 which is its 50 DMA followed by its 200 DMA $95.72.  It may not make it to $95 in the next week or two but will reach for that area.


First support lies at $87 which is where your stop should be.  A breach of $87 will completely negate this analysis and open the way for a retest of the recent floor at $78.  However the probability of  such a scenario looks remote given the wave counts.


US Dollar:



The US $ is correcting in a text book fashion from its recent top 84.25.  In this correction it has already made a low of 78.6 on 14th September and is currently in a counter trend rally that will be capped by its 50 and 200 DMAs, both of which are overhead in the 80.50.  The $ closed the last week 79.6880.

While a rally to the 80.50 is likely in the ensuing week, the longer time frame correction from 84.25 is not over and will likely have a second leg that will retest 78.50 area.  Look to sell the $ on a rally to 80.50 area with a stop loss just above its 200 DMA.







As expected, the Euro$ continued to correct from its recent top at 1.3175 and closed the week at 1.3021.  The Euro did attempt a counter-trend rally from the low of 1.28 for the previous top but turned down well before that level.

Barring small counter-trend rallies, the Euro is now set for a retest of 1.28 level in the next few weeks.  If that level is breached decisively, the currency would unleash a destructive C wave its ongoing correction from the top of 1.5000 whose target could be 1.2000.

So watch the 1.2800 level like a hawk.  Keep a stop loss just above 1.32 for shorts.  A rally above that level will negate this analysis.






The $ pulled off a surprisingly sharp rally from 51.50 to end the week at INR 53.99.


The $ has surprised both to the downside when it breached 52.50 and now to the upside by taking out its 200 DMA currently at 53.40.  Apparently, trading discipline is not one of the virtues of $-INR market!

The $ is unlikely to go higher than INR 54.50 which is its 50 DMA overhead in the current rally.  In fact it should reverse well before that to [a] retest its floor at INR 53.40 which its 200 DMA and on a breach of the same, the congestion zone just above 52.50.  There is time & room for such a retest & confirmation of the floor for the $ in the 52 region before a meaningful rally develops.


NASDAQ Composite:



Essentially, I have reproduced last week’s chart firstly because it requires no change except to mark the next support and secondly to show the technical damage inflicted on the index by earnings disappointments by Intel, IBM, and Google.  Note the index rallied from 3040 as expected to 3096 which is also its 50 DMA before going into an unexpected fall breaching the base trend line of the rally to close the week at 3005.62.  Is the party over?

There is no doubt that the breach of 3040 again has thrown up a very significant crack in the markets.  The breach of the base trend-line underlines the weakness. However, the index could take support at the 2950 level, which is a significant support, and also the 200 DMA, and rally decisively from there to reclaim the 3100 area.  But unless it does do that, and does it quickly, we could see a complete breakdown in the index.

As mentioned last week the markets is skating on thin ice of an extension that can reverse on a dime.


S&P 500:



The technical position of S&P 500 [SPX] is much better than that of the NASDAQ Comp.  The index too corrected with the NASDAQ and is currently positioned at 1433 testing its support at 50 DMA and the base trend line of the current rally.  A further fall below 1420 would certainly call the entire rally into question.  But the disaster hasn’t happened yet.  It only threatens at this point.


Structurally, If SPX reverses course above 1420 and quickly reclaims the 1475 area in the next 3 or 4 trading sessions the technical damage would repaired.  Furthermore, SPX’s correction so far is at a place where one would expect to have one.  So it’s not a surprise as in the case of NASDAQ.


That said, SPX like NASDAQ is also on an extension & can turn on a dime.  Place stops at 1415 and get out if the level is breached.





The NIFTY continued its correction in an expected and orderly manner closing the week at 5684.25.  The correction is likely to continue until the end of October and has a first target at 5530 followed by a deeper target at 5450.  As long as NIFTY remains above 5400, the scope for a rally after this correction to 5850 and beyond remains intact.


A breach of 5450 would a free fall.  So it is time to be cautious on Indian markets as well if the US markets show signs of taking out further supports.  However, apart for the breach on 5th October, there is nothing on NFTY charts to indicate imminent danger.


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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G-Jaw-G Land Bank

October 16, 2012 1 comment

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The First G-JAW-G

October 16, 2012 1 comment

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The perils of conflating Modi with Gujarat

October 14, 2012 Leave a comment

The perils of conflating Modi with Gujarat

October 02, 2012 10:01 IST
The fact is that by conflating Modi with Gujarat the larger lesson in development —  economic reforms — is being sidelined and lost, say Sonali Ranade and Shaelja SharmaFor some strange reason, the media and many other informed circles continue to conflate Gujarat’s economic progress with the superior performance of Narendra Modi [ Images ] as chief minister of Gujarat. In a two-part article recently (read them here and here), we showed that Gujarat was one of the top performing states long before Modi arrived on the scene.

Modi acolytes quickly countered that. Their Modified refrain was to say that Modi had been successful in maintaining a very high growth and moving it further towards faster growth, albeit by a small percentage. That self-serving argument collapsed when we showed that Gujarat’s twin next door had a GSDP not 25 per cent but 2.50 times higher than that of Gujarat AND still clocked a higher growth rate in GSDP in the last five years without the benefit of a demigod in the chief minister’s chair. What accounts for this conflation of Modi’s performance with Gujarat’s long-term trends in development except poopganda and hype?

We recently read an excellent article by Arvind Panagariya in The Times of India [ Images ] wherein the Columbia professor made a point about separating the politics about Gujarat from its economic performance. There was a period of time, just after the 2002 riots, when Modi was afforded a certain amount of leeway, by the media and others, in hyping up Gujarat’s economic performance as a way of rebuilding Gujarat’s shattered morale and self-confidence. 

For instance, Gujarat used the 2001-03 severe drought years to form the base year for appraising its agriculture growth. And to top up the folly, it failed to take the inflation out of the nominal agricultural production to show fabulous growth rates achieved by Modi. It took a lot of public, on record, berating from the Planning Commission before the numbers were rectified and scaled down. Furthermore, the Narmada Dam was close to 20 years in building and actually came on line with irrigation canals et al in 2002. This gave a huge, but one-time, step up to agriculture in the state. Need proof? Take look at thistable. 

Removing the drought and bounce years from the data series for Gujarat, we take a look at growth in agriculture over seven years, from 2004-05 to 2010-11, for Gujarat and comparable states comprising Andhra Pradesh, Karnataka [ Images ], Maharashtra [ Images ], Tamil Nadu and West Bengal [ Images]. The all-India compounded annual growth rate [CAGR] was 3.31. The highest rate recorded was by Karnataka (10.89 pc), followed by Tamil Nadu (8.64 pc), Andhra Pradesh (7.81 pc), Gujarat (5.58 pc), Maharashtra (2.43 pc) and, lastly, West Bengal (2.15 pc). This is the recorded growth over a seven-year period, not a flash in the pan; and the comparator states are large and populous ones. Where is Modi’s chamatkar

Gujarat has done as well as it always did before Modi, and will continue to do so after him. That then is our problem with buying into the conflation of Modi with Gujarat and vice versa. Note, Maharashtra’s colossal failure in agriculture despite Shard Pawar being the Union agriculture minister. Maharashtra failed to add a single acre to land under irrigation in the last 20 years and the results reflect that abysmal failure.

But let’s get back to Gujarat and the latest twist to its story in manufacturing where a few dramatic gestures in land allocation to large industrial houses have made Modi the darling of corporate honchos. Take a look at the table again. Here are the CAGR numbers: Maharashtra (14.37 pc), Gujarat (13.47 pc), Andhra (10.90 pc), West Bengal (8.80 pc), Tamil Nadu (8.49 pc), Karnataka (7.76 pc). Again, these are CAGRs over 10 years and hence unbiased by random fluctuations. The all-India growth rate in manufacturing over the period was an abysmal 7.86 pc, reflecting India’s archaic labour laws and other regulations.


To round off the growth debate in Gujarat under Modi, take a look at the overall GSDP growth number over the last seven years. This data is available on the Planning Commission website. And here is the most salient feature of this set of numbers. All, repeat all, the larger states, except West Bengal, did well over the last seven years [CAGR 2004 to 2011], there being little to choose between them. Let the numbers speak for themselves: Maharashtra 10.69 pc, Tamil Nadu 10.34 pc, Gujarat 10.06 pc, Karnataka 9.14 pc, Andhra 9.09 pc and West Bengal 7.21 pc. All the major states clocked between nine and 10 pc. Where is the miracle in Gujarat except in the hype?

Gujarat’s relative lag on social indicators of development relative to its peer comparator states is often explained away as being not too bad relative to others, especially in the context of Modi’s miracle on growth. Well, there is no growth miracle in Gujarat; rather it is business as usual. And to be honest, Gujarat does no better, and certainly no worse, than other comparator states in such things as poverty reduction, literacy, child mortality, and nutrition. The data relating to these parameters is available on the Planning Commission website. The literacy rate in all the large comparator states range from 67.66 pc [Andhra] to 82.91 pc [Maharashtra], with Gujarat at 79.73 pc. Panagariya makes a great point in drawing attention to the fact that Gujarat has done well to catch up with its peer states in literacy. However, note that this trend has been in progress ever since 1981 in terms of data cited by him. It’s not something unique to Modi.


Now take the total reduction in poverty between 2004-05 and 2009-10. Maharashtra reduced total poverty by 13.7 pc, followed by Tamil Nadu 12.3 pc, Karnataka 9.7 pc, Gujarat 8.6 pc, Andhra 8.5 pc, while the all-India reduction in poverty was 7.4 pc. Gujarat was above average but well behind the leaders and fell short in relation to its growth numbers.


So whether you take hard economic growth numbers or social indicators, two facts stand out. First, as we showed earlier, Gujarat’s growth rate has always been high, much before Modi came on the scene. Modi has at best maintained the growth but certainly not accelerated it. And in the last few years many other larger states have beaten Gujarat in the race. Maharashtra in particular, with a GSDP 2.5 times that of Gujarat, has not only clocked a higher all-round growth rate [except in agriculture] but also is right at the top in social indicators of development like poverty reduction or literacy. 

But the second aspect is more worrisome.  Not only has the Gujarat story been hyped out of all proportion, but also the hype is being used to promote a fascist personality cult around Modi, making him out to be some kind of a super performer in economic development. This proposition is without basis. As the data above shows, Gujarat’s performance is good but there are others who have done far better without any demi-gods at the helm. 

Of the other BJP-ruled states, with the exception of Karnataka, none of them figure anywhere in the top performance rankings either in terms of growth or social development. So Modi may well be the tallest leader in the BJP. But being tall in the BJP means nothing when-run-of-the-mill politicians in next door Maharashtra outperform you despite serious policy failures like zero, yes zero, investment in irrigation over the last 20 years. 

The fact is that by conflating Modi with Gujarat the larger lesson in development —  economic reforms — is being sidelined and lost.  As we showed in our earlier articles, it was the economic reforms of 1991 that almost doubled the growth rate of GSDP of all states, big and small. It is reforms that lead to higher productivity and higher growth and not this or that personality cult. The short cut to nirvana through Modi or any other demi-god simply doesn’t exist. 

As we have seen, Modi himself is not an economic reformer.  His philosophy of development is centred around a command-and-control authoritarian model that rams through projects and programmes by sheer administrative fiat that is simply not scalable to an all-India level given the country’s diversity and cultural mores.


Rather than promote dubious personality cults, Gujarat’s growth story, with that of Maharashtra, Tamil Nadu and Karnataka, is better used to promote economic reforms that will do us much greater good. The lag in reforms is causing us to miss great opportunities to pull our people out of poverty through faster growth.

Sonali Ranade is a trader in the international markets and Shaelja Sharma is an HR professional

Sonali Ranade and Shaelja Sharma


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