Gold

 

Gold has been consolidating for 19 months and has recently given a breakout. I expect gold to move upto 2500 USD in this leg of rally.

Crude Oil

Crude oil has a stupendous rally from the lows of sub 20 USD per barrel to the high of 77 USD per barrel. If we look at the given chart of crude oil the rally has reached a tipping point. Crude oil has been trading in this downward sliding channel since 2008 and it will again face resistance at these levels. I don't see a breakout for crude oil and the most likely trend from here is down. 

US MARKET

 

In my previous post on US markets, I wrote on 8^th July 2020, I wrote, “If we look at the given chart of Nasdaq 100, we can see that the index is moving within the channel and now it has reached the upper end of the channel. The resistance for Nasdaq lies at 11000 levels.

S&P500 is having resistance at 3250 levels. What I infer from charts is that markets have reached a significant resistance level and the likely movement from here is downwards.” 

Since then the US markets have stretched and gone up another 10% If we look at the given weekly chart of S&P500 we can see that it is moving in an expanding triangle and it has reached the upper end of the triangle. 

I think S&P is ripe for some serious correction, Statistically, September has been one of the worst months for S&P and the valuations look super stretched and I won’t be surprised if it starts in September.

US Markets

US Markets have bounced back 100% from the bottom formed in mid-march 2020. The rally was unleashed by massive QE done by FED and ECB and other central banks across the globe. 

Ironically, I wrote an article on 16^th march 2020  contemplating that if COVID in the US continues to be on the same path as Italy, the disease will spread in USA and markets will plunge along with it and S&P may fall to 1600 levels. 

COVID did spread in US and the situation there is much worse than Italy but S&P bottomed out at 2200 levels on 22nd March 2020.

I also mentioned in that post that generally I don’t rationalize the price movement and once again I learned why it’s a good idea. Lessons learned well.

One of the crucial learning I had from the GFC was that liquidity drives the asset prices. If the central banks binge on massive QE then asset prices are more than likely to recover. On 31^st October 2010, I wrote, “Never fight the mother FED” Another lesson worth remembering.

If we look at the given chart of Nasdaq 100, we can see that the index is moving within the channel and now it has reached the upper end of the channel. The resistance for Nasdaq lies at 11000 levels.  

Similarly, S&P500 is having resistance at 3250 levels. What I infer form charts is that markets have reached to significant resistance level and the likely movement from here is downwards. 

Summary

1.       US index has reached long term resistance.

2.       S&P500 faces resistance at 500 at 3250 level

3.       Nasdaq 100 faces resistance at 11000 levels

4.       The most likely move from here is down.

Crude and INR

On 19^th March 2020, I wrote, “If we look at the given chart of INR the weakness in INR will continue. I expect INR to depreciate to 78 and beyond in the current year.”

INR has since then made a high of 77.60 and has been strengthening since then. If we look at the given chart of INR it looks like it will strengthen upto 72 levels if not more in the current move. 

On the same day, I wrote, “If we look at the given chart of crude oil we can see that long term support for crude exists at 20 USD. I think crude will find its feet at these levels. Also, crude oil will now find it difficult to move above 50 USD a barrel and the long term range for crude oil is now between 20 to 50 USD per barrel.”

Crude oil subsequently made a low of 16.78 and 19.7 USD on a closing basis. Since then it has moved up by 100%. I continue with my previous call on crude, Crude will continue to trade between 20 to 50 USD for the next couple of years. It will be extremely difficult for crude to sustain above 70 USD per barrel. The longer-term outlook is bearish and crude can fall below 20 USD after 5 to 8 years.

Indian Index

Nifty has found support at 8000 levels and has bounced back to 9400 levels. If we look at the daily chart, the entire rise in nifty is in the form of a wedge. The resistance for this pattern in Nifty lies at 9500 to 9600 level. If Nifty breaks below 9000 levels then we will see the second round of market correction which will take the market much below the recent lows of 7600.

If we look at the quarterly chart of Nifty, we can see that Nifty took support at the lower end of the channel which was at 8500. If we break below 8500 the target for a parallel channel is in the range of 5500.

Nifty has an EPS of around 450 RS and it is still trading at a P/E Of 20X. Historically markets have bottomed out at P/E of 12X which again gives us a target of 5500 on Nifty.

Summary:

1) Nifty is forming a rising wedge pattern in daily charts. Any breakdown below 9000 signifies a deep cut in Nifty
2) The nifty quarterly chart has found a support at 8500 levels, Any break below 8500 will cause the market to correct sharply
3) Nifty is still trading at P/E multiple of 20X, while historically the bottoms have occurred at around 12X which gives us a target of 5500 levels.

Commodities

On 22^nd Feb 2020, I wrote, “If we look at the weekly chart of NY Crude we can see that the crude is largely trading in a range of 50 -64 and Brent are largely trading in the range of 52-66 USD. Unless crude oil break above or below this channel crude will stay in this trading range.”

Subsequently Crude Oil broke the lower support of the channel and fell to 25 USD a barrel. In the last 20 days’ crude oil saw a fall of 60%.  If we look at the given chart of crude oil we can see that long term support for crude exists at 20 USD. I think crude will find its feet at these levels.

Also, crude oil will now find it difficult to move above 50 USD a barrel and the long term range for crude oil is now between 20 to 50 USD per barrel. 

On the same day,  I wrote, “I believe that silver is on the verge of a breakout and the target for silver will be 27 USD and a further 35 USD in the next 5 years.”

I have been completely proven wrong in my call on silver. Silver made a top on that day and since then has fallen 33% to 12 USD and ounce. The fall in silver was baffling to say the least. Silver has behaved more like industrial metals instead of precious metals.  If we look at the given chart of silver it may fall to 8 USD but I will refrain from making any call on silver as of now. 

Currencies

On 4^th October 2018, I wrote, “If we look at the current chart of INR the target for the pattern comes at 76 -77 and INR should depreciate to those levels in the next 1.5 years.”

It has been almost 1.5 years and INR is trading at a low of 75.25. If we look at the given chart of INR the weakness in INR will continue. I expect INR to depreciate to 78 and beyond in the current year. 

On 18^TH November 2016, I wrote, “If we look at the given chart of DXY it seems that DXY is ready to move up to 120 levels. If DXY closes above 100 levels by the end of December, the target will be 120.”

Dollar index did not move as expected. It made a high of 103 in January 2017 and then fell to 88 levels. Since then it has gradually been moving up and has currently crossed 100 levels. If we look at the yearly chart of DXY index it is showing a classical bull formation. The breakout I was expecting in 2017 may happen in 2020. I expect Dollar bull market to continue and my target for DXY stays at 120 levels. Expect Euro, GBP, YEN and other currencies to fall. 

Dark clouds all over, things will get worse

On 28^th February 2020, I wrote, “ If we look at the given chart of Nifty we can see that the index have support between 10K to 10700.  At this point in time, I believe that the support should work and Nifty should find its feet at these supports. In case things worsen and everything goes downhill the ultimate support for Nifty exist at 8500 levels.”

On SPX, I wrote, “If S&P closes below 3000 levels for two consecutive months (I presume this will happen) the target on the downside will be steep. S&P has support at 2700, 2400 and 2100 levels. In the worst-case circumstances, S&P may fall to 1800 levels. This should be absolute long term bottom if at all it happens.”

When I wrote this Nifty was trading at 11600 and it fell 3000 points, while S&P500 was trading at 3000 fell 515 points. Nifty found support at 8555 levels and S&P found support at 2485. When I wrote the post on 28^th February, I never thought that this will come to pass so soon.

Generally, I never rationalize the reason behind price movement because I believe that there are several factors which impact the price at any given point in time. A human mind cannot understand and judge the impact of multiple factors which may pull price in a different direction.

However, the current fall in markets are abnormal and every day we see a 5% sell-off in equity markets. I think the driving factor behind this fall is the COVID-19 pandemic which has caused the crash in market confidence. As per my understanding market, P/E reflects the investor’s confidence in the future. When the future becomes uncertain the P/E contracts and vice versa.

I believe that the current pandemic is yet to run its course. From whatever I am reading my understanding is that the west is grossly underprepared for tackling the crisis. If we look at the given chart, we can see that the US, UK and western Europe are tracking China’s trajectory. Italy with 25000 cases and 1800 death is 2 weeks ahead of US and we don’t know yet whether Italy has peaked out.

In case the US continues the same trajectory, the number of infected people and the number of deaths will be multiple of what we see today. If this happens, we will see a massive multiple (P/E) compression in all risk assets including equity markets in the US and globally.

If I am reading this situation correctly, I think we will see Nifty trading at 6000 levels and S&P500 trading at 1600 levels. I also believe that this will be a once in a decade opportunity to invest in stocks.

Indian Index and US index

On 31^st March 2019, I wrote, “If we look at the given chart of the index, we can see that resistance exists at 12500 levels. The index may break the resistance in case of extremely favourable election results. The long term target for nifty stays at 15000 to 18000”

Since then Indian elections came and went and the results were better than expected, yet Nifty failed to break the resistance of 12500. Nifty made a top at 12430 and corrected 10% in last two months. If we look at the given chart of Nifty we can see that the index have support between 10K to 10700.  At this point in time, I believe that the support should work and Nifty should find its feet at these supports. In case things worsen and everything goes downhill the ultimate support for Nifty exist at 8500 levels.

On 6^th January 2020, I wrote, “I have been observing this channel since the channel break out happened in December 2013. S&P has reached the channel target of 3300. There are two scenarios which can pan out from here. The most likely course for S&P should be a time and at price correction from these levels.  But I think that won’t happen. I think S&P will have a throw over of the main channel and the index may move up to 3600 to even 4000 levels. This move should pan out at a lightning speed. The long term top in S&P should form at those levels after which a serious correction looks imminent.”

I have presented two scenarios in that post.

1)      Time and price correction may start at 3300 levels

2)      Time and price correction may start after a throw over of the main channel where the index moves up rapidly and then starts time and price correction.

The strength of the underlying trend was so high that I believed that S&P will have a throw over. But this has been disproved by the subsequent move in S&P. In the last one week, the index has lost 10%. If we look at the given chart the uptrend in S&P500 which started in June 2009 and lasted for 11 years is now under threat.

If S&P closes below 3000 levels for two consecutive months (I presume this will happen) the target on the downside will be steep. S&P has support at 2700, 2400 and 2100 levels. In the worst-case circumstances, S&P may fall to 1800 levels. This should be absolute long term bottom if at all it happens.  

Precious metals

In my previous post on Gold, I wrote, “If we look at the chart we can see that gold has been making multiple inverse head and shoulder formation for the last 5 years and the neckline lies at 1350-1380. It had attempted to break above this level for 8 times and failed. Today once again gold is trading above 1380 and if it sustains above 1400, the target for gold most likely will be 1800 and maybe 2400 in the next five years.”

Since then Gold has moved up 20% in last 8 months and yesterday made a high of 1650 USD. The current move in gold should continue till 1800 USD. I believe gold will consolidate at 1800 level before further breaking out for higher targets. I continue to maintain the target of 2400 – 2500 USD in next five years.

In the same post I wrote, “Similarly, silver is also looking poised for a breakout and may move up to 20 USD and above.”

Since then silver also moved up 20% and made a high of 18.60 yesterday. Although the intensity of the move looks very low compared to gold. I believe that silver is on the verge of breakout and the target for silver will be 27 USD and further 35 USD in next 5 years. 

Summary:-

1) Expect gold to move to 1800 USD.
2) Expect some resistance in Gold price at 1800 USD
3) Ultimate target for Gold retained at 2400 USD
5) Silver is on the verge of breaking out and should move to 27 and 35 USD over next five years.

Crude OIl

In my previous post on crude oil, I wrote, “If we look at the given chart of WTI crude, we can see that it has strong support at 60 USD. Most likely we will see a 6% to 10% bounce from the current levels and it may move up to 65$, but I expect that to be short-lived. I think the price will again fall from there to 55$ where it will test the long-term channel support. This can happen before the end of December 2018”

The downward momentum in crude oil was stronger than my expectation and crude oil continue to fall to 42 USD. Since then crude bounced back to 65 USD and has largely remained in a range between 55 to 65 USD.

If we look at the weekly chart of NY Crude we can see that the crude is largely trading in a range of 50 -64 and Brent is largely trading in the range of 52-66 USD.

Unless crude oil break above or below this channel crude will stay in this trading range.  

In my previous post written on 11^th January 2015, I wrote, “Long term average prices of crude oil should stay between 50 to 80 USD.” I will narrow this range down to 50 to 70 dollar and my long term bias is on the downside. 

Indian stocks

I generally avoid giving stock-specific calls in my blog as stock suffers from more idiosyncratic risk compared to the index. But at times the chart looks so compelling that I can’t resist writing about them. The last stock-specific call I gave was on reliance industry on 22^nd February 2017  when it was trading at 600 levels with a target of 800 and 1150.

I followed up on this call on 25th January 2018, reiterating my target of 1150 on reliance industries. Ultimately reliance industry moved up by 200% in the last three years and recently made a high of 1600 rupees exceeding my initial targets. 

I came across a similar stock which looks equally compelling. If we look at the given chart of Bharti Airtel. The stock is breaking out of 13 years long consolidation pattern and the target for Bharti airtel will be as high as 900 to 1100 rupees.   

US Index

On 22^nd February 2017 when SPX was trading at 2354, I wrote, “SPX has negated the bearish doji in yearly chart which indicates very strong bullish momentum in the index Target for SPX will be ultimately at 3200 and unless SPX breaks below the support of the channel (yellow channel) this target should be achievable.”

I followed up on 21^st December 2017, “The strong bullish momentum continued throughout the year and SPX is up by almost 14% since then. If we look at the current weekly chart for SPX500, the index has reached to a crucial resistance level of 2700. The index should face multiple resistance at these levels and it seems that a correction to 2400 – 2500 looks very likely. However, the long-term target for SPX stays at 3200 -3300 and index should resume its upward march after the brief pause which will be a good long-term buying opportunity.” 

What happened subsequently?

SPX moved up 7% in January 2018 and made a high of 2870 before it fell 20% to make a low of 2319 in December 2018. The up move of 7% in a single month was completely unexpected as I saw resistance on charts at 2700 levels. This phenomena where an asset moves above its resistance for a short period is known as throw over and I clearly did not envisage a throw over in the index.

The subsequent correction in S&P500 was completely on expected lines. I was targeting a low of 2400 while S&P bottomed out at 2319. Just as I thought it was a very good long term buying opportunity and S&P500 today has hit my target of 3300. In three years from February 2017 to January 2020, S&P has given 40% returns

What happens next?

I have been observing this channel since the channel break out happened in December 2013. S&P has reached the channel target of 3300. There are two scenarios which can pan out from here. The most likely course for S&P should be a time and at price correction from these levels.

But I think that won’t happen. I think S&P will have a throw over of the main channel and the index may move up to 3600 to even 4000 levels. This move should pan out at a lightning speed. The long term top in S&P should form at those levels after which a serious correction look imminent.

What will I do?

I will continue to monitor markets and if S&P continues to rise rapidly I will start reducing my equity exposure between 3500 to 3800 levels.

I think global equity markets will also behave in a similar fashion and we can use S&P levels to time our long term investments in stocks.

BSE Smallcap

On 4th October 2018, I wrote, “If we look at the small-cap index which is already battered in recent fall (-30%), we may see levels up to 12500 on the BSE Small Cap index which is another 10% fall from the current levels.”

Recently Small cap index made a low of 12,000 and is currently trading at 12,500 levels. If we look at the below chart, the correction in small-cap seems to be over and I think the small-cap index will outperform the markets going forward. 

I had given two other calls in the same post:

1)Bse Sensex as expected made a low of 33000 and reversed from there. I wrote an update on this in my post on March 2019

2) I expected INR to move to 75 - 76 levels. INR instead went through a bear market correction and strengthened to 68.50 levels before starting to correct again. I expect INR to fall to 75 - 76 level in the recent correction cycle. 

Tech Musing

I have been bullish on Gold since 2013 and every time I thought gold will break out it didn’t. In my previous post on gold, I wrote “we look at the daily chart of gold, we can clearly see time correction playing out. Since gold made a bottom in 2012 it had been almost 5 years since gold prices have been consolidating at these levels. If we look at the long-term structure of gold (in the yearly chart) gold had a 10X rally from 2001 – 2011 and since then it fell by 50% (price correction). So gold has completed its price correction and time correction. Look at the given chart I don’t see any reason why gold will not break out from these levels and surprise everyone on the upside.”

If we look at the chart we can see that gold has been making multiple inverse head and shoulder formation for the last 5 years and the neckline lies at 1350-1380. It had attempted to break above this level for 8 times and failed. Today once again gold is trading above 1380 and if it sustains above 1400, the target for gold most likely will be 1800 and maybe 2400 in the next five years.

Similarly, silver is also looking poised for a breakout and may move up to 20 USD and above. 

Tech Musing - Indian Interest rates.

The below chart shows the 10-year Yield on Indian GSEC and it's forming an evening star pattern. Indian 10 year yield is set to fall to 6% over the next couple of years.

Tech musing

In my previous post on 18th November,  I wrote, “Shanghai Composite is trading at the lower end of the 25-year-old channel and in past, it had bounced back from these levels for three times generating multi-bagger returns. It seems to me that China is on the cusp of a major change if these levels hold Shanghai composite can multiply 2X or 3X from current levels in the next 5 years.  The risk-reward ratio seems extremely attractive from current levels.”

Since then Shcomp has moved up by 15% to 3090 levels despite all the negative news on US - China trade war.  The up move should continue and we should see a substantial bull market in Chinese equity. 

In another post on 4^th October 2018, I wrote, “If we look at the long-term yearly chart of Sensex the trend line support exists at 33000 levels. Which means that Index should not fall below 33,000 otherwise long-term trends will be broken and we will be in a multiyear bear market. We can see the support marked on the chart with an arrow. A multi-year bear market should not happen unless we have a major geopolitical event and break down in global trade system. Hence this scenario looks highly unlikely to me and I believe that most likely index will bottom out at 33,000.”

Since then Index made a low of 33,291 on 26^th October and bounced back to match the previous high. As expected the more bearish scenario did not play out. If we look at the given chart of the index, we can see that resistance exists at 12500 levels. The index may break the resistance in case of extremely favourable election results. The long term target for nifty stays at 15000 to 18000

Bitcoin

In my first post on Bitcoin on 20^th December 2017, I wrote, “Bitcoin is going to get interesting in coming days and it may not be pretty for many investors.” Bitcoin was trading at 17250 USD and I was expecting a very sharp correction in Bitcoin.

 In my follow up a post on 5^th February 2018 , I wrote, “Since then the price of Bitcoin crashed by more than 50% and is currently trading at 7360, Minor support for bitcoin exist at 6800 levels but I feel that it will just give some small respite to the speculator. Bitcoins should fall below 4000 in coming days.” Since February till last week Bitcoin consolidated at 6000- 8000 levels as expected and it broke below the support recently.

As you can see in the following chart. Bitcoin has broken below the support. It is currently trading at 4600 USD and very near to my expected target of 4000. I suspect that once it breaks 4000 it's going to be a very ugly site. The long-term chart of bitcoin suggests correction could go below 2000 but that will happen only once it trades below 4000 levels.  

Shanghai Composite

In my previous post on 8^th January 2016, Shanghai Composite index, I wrote, “Shcomp moved up from 3285 to 5050 levels before the equally spectacular crash after completing my target. Shcomp looks weak and will correct going forward.”

In the last three years, Shanghai composite continued its correction and made a low of 2479. The correction looks impressive if we consider that the index had spent three years doing time correction. 

If we look at the given chart, Shanghai Composite looks very interesting. Shanghai Composite is trading at the lower end of the 25-year-old channel and in past, it had bounced back from these levels for three times generating multi-bagger returns.

It seems to me that China is on the cusp of a major change if these levels hold Shanghai composite can multiply 2X or 3X from current levels in the next 5 years.  The risk-reward ratio seems extremely attractive from current levels.

Summary

1.      Long on Shanghai Composite at 2679

2.      Stop loss below 1900
3.      The target of 5000+ levels the over the next five years. 

Crude oil

In my previous post on crude oil written on 26^th November 2017, I wrote, “Any breakout above 60 USD looks difficult, I think crude will consolidate between 50$ - 60$ before any further breakout which can push the prices to 70$ – 77$ level. I think the most likely reason for the breakout will be further deterioration in the geopolitical situation in major oil-producing countries.

If we look at the long-term chart of crude, I think the bear market in crude oil started in 2008 and we are already into 10 years of bear market. I don’t think we are going back to 100$ levels anytime soon but crude is very likely to consolidate and trade between 50$ to 77$ depending on the geopolitical situation. I continue to maintain an upward and positive bias on crude oil over next 2 years with short-term correction looking imminent.”

Crude oil did not correct as excepted but it broke above the resistance level and hit the upside target of 77 USD as mentioned in my post. Since then Crude has corrected by 20%.

If we look at the given chart of WTI crude, we can see that it has a strong support at 60 USD. Most likely we will see a 6% to 10% bounce from the current levels and it may move up to 65$, but I expect that to be short lived. I think the price will again fall from there to 55$ where it will test the long-term channel support. This can happen before the end of December 2018

Summary:-

·         Expect WTI to fall to 55 USD before the end of December.

·         There can be some intermediate bounce in the price to 65$

·         Crude should find support at 55 USD

Tech Musings

In my previous post on INR, on 8^th July 2018, I wrote, “If we look at the given chart we can see that INR made a high of 68.85 on 27^th August 2013 and had been trading below that level since then. Once INR breaks above 69 we will see some quick depreciation of INR to 73 – 74 levels.”

Since then INR has deprecated significantly and is currently trading at 73.75 levels which has hit my expected target. While most of the other analysts were surprised by the sudden weakness I think this was on cards for a long time.

If we look at the current chart of INR the target for the pattern comes at 76 -77 and INR should depreciate to those levels in the next 1.5 years. 

Indian equity markets and emerging markets, in general, underwent significant corrections recently. Although I don’t try to contemplate the reasons for market movements as I believe that there can be many reasons for markets to move and it’s hard for our mind to fathom all of them. The recent correction in EM assets could be because of cash outflows from EM assets. With Global central bank reducing liquidity from markets and FED tightening interest rates, US assets have become much more attractive, hence the situation may persist for another 12 – 18 months.

This could also be partly due to hike in crude oil prices which creates current account deficit for many EM countries and the global turmoil in the global political environment (there is always something interesting happening in global geopolitics)

Putting these explanations aside let us look at the price target for the current correction in the context of Indian markets. Since elections are near and if the current government loses the election the correction in the market can be quite significant. Hence I am contemplating two scenarios.

If we look at the long-term yearly chart of Sensex the trend line support exists at 33000 levels. Which means that Index should not fall below 33,000 otherwise long-term trends will be broken and we will be in a multiyear bear market. We can see the support marked on the chart with an arrow. A multi-year bear market should not happen unless we have a major geopolitical event and break down in global trade system. Hence this scenario looks highly unlikely to me and I believe that most likely index will bottom out at 33,000.

In the second scenario let’s assume that the current government loses power and the selloff intensifies and becomes more India centric then chart can look something like this.  

Which means that we can see the formation of a head and shoulder pattern on the chart with the neckline at 33000. 

So the current fall should continue till the market hit 33000, then there should be a bounce of 3000 points, which will form the right shoulder and sell off should follow once we break the neckline and market should fall to 26000. This should bring us back to the lows of November 2016.

If we look at the weekly chart, we can clearly identify the channel which shows the 26000 levels as marked by the arrow.  

If we look at the small-cap index which is already battered in recent fall (-30%), we may see levels up to 12500 on BSE small Cap index which is another 10% fall from the current levels. 

Summary:- 

1       INR has hit my target of 74, may further depreciate to 76 levels.

2.       Indian market will continue to fall; my preferred scenario is that Sensex will find support at 33,000 levels.

3.       In case things turn bad and Modi government loses the election the market may further slide to 26000

4.       The five-year target for nifty stays at 15000, - 18000 levels.

5.       The market will become extremely attractive if it falls to 26000.