Market Musings

I have written a post in July last year   in which I was contemplating about the different cycles which markets will pass through in next few years.  I was expecting that market will go through the following cycles

 PHASE:-1

Phase	Time duration	Investment to hold	Investment to avoid
Deflation Scare	0 - 6 Months	Short term US sovereign debt, Investment  grade high cash flow generating corporate bonds, USD	Equity, Commodities, Gold, Crude oil
Double dip recession/Deflation	6 -12 Months	Short term US sovereign debt, USD	Equity, Commodities, Gold, Crude oil, all other debt except sovereign debt

At the end of Phase one the government will have options of either adopting quantitative easing or go for deficit reduction and choose to take a deflation hit. I believe that the government will go for quantitative easing.

Phase	Time duration	Investment to hold	Investment to avoid
If Quantitative Easing II comes and Reflation Trade begins	12- 24 Months	Commodities, Precious metals, energy and Equity	US treasury
Inflation	24 - 36 months	Precious metals	everything else
Hyper inflation	36 -  60 months	Precious metals, Food grains	everything else

* Readers may note that the time duration I have mentioned is just for illustration. Actual time duration may vary as per the future economic environment.

The market worked fine till re-inflation trade but instead of moving towards high inflation we are slipping back to deflation trade.  I think we are now going to repeat this cycle starting again form deflationary scare and therefore investor should rearrange their portfolio towards Short term US sovereign debt, Investment grade high cash flow generating corporate bonds, USD. The rest of my post is only about the review of all the calls i have given recently. 

Following is the chart of Australian Dollar and i have given this call 11, September when AUD was trading at 1.045 today it is trading at 0.9767. I expect this weakness will continue as the demand for metals and coal weakens AUD will correct very severely may be towards 0.75 levels in coming year. 

AUD

I have written a note on crude oil on 19th September when it was trading at 87 USD today crude made a low of 80 USD. I think the long term trend is down and it will reach 60 levels in next few quarters. 

NYMEX Crude

 In the same post I also wrote about copper which had crashed form 379 to 325  levels in just few days. 

COPPER

DXY index have already reached 50% retracement and is currently facing resistance at 78.90. I think that it may pause and consolidate at these levels which indicates that global equity markets can also pause and consolidate at these levels. I will be watching DXY very keenly and if it closes above 79  levels on weekly basis it will indicate a new wave of selling in all risky assets. 

DXY Index

Euro had also done 50% retracement and is taking support at 1.34 levels.  Since DXY and EURO both have completed their 50% retracement I think there is a good probability that they will consolidate at these levels before breaking out.  I think long term trend for Euro is negative and it should correct below 1.20. I will keenly watch 1.34 levels and if it breaks below 1.34  I will go short on euro. 

EURO

Although gold is correcting since last three weeks I have not given a short on gold as European situation is very volatile and it may cause huge volatility in gold prices. Therefore any call on gold will require a constant monitoring and strict stop losses in place. 

I think that gold is forming a gravestone doji pattern in its monthly chart and it should close around 1750 -1800 levels by the end of September. If this pattern is confirmed that October can be a very bearish month for gold and gold may crash down to 1550 levels at the minimum and even to 1400 in coming quarter. 

GOLD

I am most happy to spot the free fall in INR which started at 45 levels and INR have depreciated at to 50 levels in matter of days. I think the fall in INR is too quick to be comfortable and 50 is a psychological resistance, therefore I expect INR to consolidate at these levels and even correct to 46.50 levels before making the new upmove. My long term call on INR remains bearish and I think the next target will be 52 and even 60 in next few years. 

INR

Readers may remember that I have written that unless Nifty closes above 5120 levels it will move up. In last three weeks Nifty made four attempts to conquer but failed to close above 5120 levels on weekly basis. I maintain my view that any long call on Nifty should be taken only if nifty closes above 5120 levels on weekly basis. 

Nifty Weekly chart

This is a monthly chart on Nifty we can see that Nifty have already completed 38% retracement which is at 4800 levels. I expect that nifty will break below 4750 (weekly closing basis) and will move towards 4200 levels at the minimum in coming months. 

Nifty 

I would also like to inform my readers that although this is my broad call on markets, Market will always be very volatile with sharp pull backs and investors should not be disturbed by them. I would also like to inform my readers that there is no certainty in the markets, we all work on probability and I see an very high probability of a repeat of a 2008 crisis which will be 10X more worse.