In this post I am writing about the general direction of asset markets based on long term charts of Stocks, currencies and Commodities. This post is not concerned with short term fluctuations in Assets prices. Short term fluctuations may be in counter direction to my expectations. Most of the charts I studied are indicating that asset prices are going to fall in coming months which give me more conviction in my views.
I am summarizing my observation as follows.
- CAC, DAX, FTSE and Euro Stoxx :- Faces stiff resistance and may broke the trend line. They should correct significantly in coming months.
· S&P 500:- May correct up to 1100 levels in coming months.
- Nifty 50:- Have broken the trend line and if falls below 5200 will correct to 4800 or 4400 levels.
- Shangahi Composite: - Looks very weak on charts. If closes below 2500 on quarterly basis the index may correct severely up to 2350 and if falls below 2200 it may go to 1700 -1500
- Euro: - Looks bearish have formed a grave stone doji which is a major reversal pattern
- Yen:- Expect Yen to depreciate against dollar from next year onwards. It may go to 100 levels.
- DXY:- Looks like it will break out of 26 years of down trend and will move up to 100 levels in next 2 -3 years
- Silver:- forming a grave stone doji. If the current quarter closes at these levels may crash in next 3 -6 months
- Crude:- Near long term support line. May break long term support and fall further.
Looking at all these charts I think that Fed will not come out with QE III which will result into a collapse in all asset prices. Interest rates may also move up which will increase the cost of money and therefore will contribute to the fall in asset prices. Gold may also correct severely form there although till now Gold charts looks very strong.
Charts are also giving an indication that Euro zone may fail to resolve the crisis and it will worsen resulting into a fall in Euro and stocks form Euro Zone countries.
Shanghai Chart also indicates that China will have a hard landing and it may face serious problems as it Credit bubble may burst.
Global Stock Index
S&P 500
In the current chart we can see that S&P 500 has broken the trend line. This is a significant break down as the current trend started in March 2009 from the low of 666 S&P move up to 1370. This is the first significant break of the trend line and I expect significant correction in S&P going forward
S&P Quarterly candle chart
The following chart is S&P quarterly candle chart. In the chart we can see that the current quarter which will end on 30th June is forming a inverted Hammer and an engulfing bearish pattern. Both patterns are major reversal pattern if they occur on the top of the trend.
Since the current quarter still has two weeks to close. I am preempting the closing candle. Looking at the current quarterly candle there are two possibilities.
Scenario 1:- Either S&P can close at or below the current level. This will result into the current quarter candle being an inverted hammer and a Bearish engulfing pattern
Or
Scenario 2:- S&P may stage a recovery in last two weeks of June and will form a Grave stone doji in the quarterly chart which will be followed up by a big negative candle which will form a evening star at the top.
Since trend line is broken I expect that a major reversal and Candle stick charting are giving confirming signals.
In both cases I am expecting a major correction on S&P to be inevitable in next 3 -6 months.
To understand the quantum of the correction I have used Fibonacci retracement levels. As we can see form the given chart S&P will correct significantly with 1200 being the first target and 1100 being the second target. I cannot rule out S&P falling up to 1015 levels which will be 50% retracement and major support level.
CAC
In the given chart we can see that CAC had failed to close above 4000 levels since last seven quarters and the current quarterly candle is a bearish reversal candle.
As we can see form the second chart CAC is very near to its long term trend line and I expect CAC to break this trend line and fall further in coming months.
It should also be observed that CAC had a very weak recovery falling the fall of 2008 this is in sharp contrast to German DAX index which have seen a very strong recovery and had almost reached the peak of December 2008. This also indicates that France will be more impacted by the Euro zone crisis compared to Germany.
DAX
We can see that DAX is also trading very near to its long term support line.
In the second chart we can see the quarterly candle pattern for DAX which is forming a Grave stone Doji pattern. Grave stone Doji is a very bearish pattern which forms at the top and generally results into formation of an evening star candle in the following quarter. Therefore I am expecting DAX to correct significantly in next 6 months.
The given chart of Euro stoxx is very similar to CAC which indicates that the recovery in Euro zone stocks has been very mild and ineffective. The current price is very near to long term trend line and if this trend line breaks it may result into further down fall.
In the quarterly candle stick chart we can see that Euro Stoxx50 could not close above 3000 levels form last seven quarters. Moreover the current candle which will be completed on 30th June is forming an inverted
Hammer. I expect Euro Stoxx will break trend line and correct significantly in coming quarters.
FTSE 100
FSTE 100 have already broken the trend line and it seems that the index is heading lower.
In candle stick chart we can see that FTSE is forming a evening star in quarterly candle. Evening star is a major trend reversal pattern and when it formed at the top it indicates that a severe correction can come.
To continue with my last mail on Nifty we can see that Nifty had also broken the trend line and now the trend which started since October 2008 to December 2010 will retrace. If nifty breaks 5200 levels it will also break a head and shoulder pattern which is also a sure sign of pending correction.
To look at the down side target of Nifty we can see that the current level of 5445 is acting as a very strong support. 5445 level also coincides with 23.6% retracement level. I expect eventually Nifty will break below 5200 and will reach 4900 and may be fall further to 4450 levels in coming months.
I will go short on Nifty on every up move with a stop of 5850.
Shanghai
In the given chart of Shanghai we can see that the current price level is very near to its long term trend which started from 1990. If the index closes below 2500 levels this will indicate a break down in trend. In that event I expect a massive correction in Shangahi Composite.
If we look at the yearly candle stick chart of Shangahi it indicates that it may be forming a evening star pattern. Since this pattern is not forming at the top the impact of this bearish formation will not be very severe. But still if Shanghai composite closes below 2500 it may correct up to 2000 or 1800 levels
If we look at the retracement in Shangahi composite in the third chart we can see that the move which started from 100 levels in 1990 went up to 6124 in October 20007.
· 50% retracement of this move is at 3055 where the index is currently finding resistance
· 61.8% retracement is at 2358 at level form where the index bounced back in July 2010 after falling form 3200.
· 76.4% retracement of Shanghai is at 1500 level which may also mean that if 2200 is broken in Shanghai composite the next target could be as lows at 1500.
EURO
In the given chart we can see that Euro is also forming a grave stone Doji in quarterly charts which will result into a major reversal and correction in Euro in coming quarters.
Yen
This is a yearly chart of Yen. Here we can see that Yen was in continuous down trend against USD since 1971. I expect this trend will reverse very soon.
If we look at the chart Yen is forming a Morning star in yearly pattern. If the current year closes around 80 levels the Yen can start to depreciate from next year onwards.
DXY
DXY is forming a butterfly doji pattern. Since this pattern is forming at the bottom of the down trend, I expect a severe reversal in DXY which can move up to 82 and beyond.
DXY is in down trend since last 26 years. I expect that this down trend will be broken and Dollar may strengthen further form there and may also move up to 100 levels in next few years.
Silver
As we can see form the given quarterly silver chart its forming a grave stone doji in quarterly chart which indicates that silver may correct even more severely form there in coming quarters. We have to wait for the follow up candle which will start forming form July 2011 onwards.
Crude Oil
We can see that crude oil is very near to its long term support line and if it breaks there can be a significant correction in crude oil prices.
