Tech musings - 26th may 2012

Let us start today’s chart check with S&P500 monthly chart. Readers will remember that in my post on 7^th May I have made a predictive pattern of what this month’s candle could look like.  In the given chart you can see the last candle shaped exactly as I have expected on 7^th may.

S&P500 Chart posted on 7th May 2012 with expected pattern

S&P500 Monthly chart as on 21st May 2012

If the current month closes at around 1300 levels then this month’s candle will be a confirmed evening star pattern. As per my experience any evening star is followed by atleast 2 -3 subsequent candle in the same direction which means that we should witness atleast one more month of bearishness in June, or at the max the markets may remain in bearish mode till September. It rarely happens that reversal pattern like evening start gets negated but if something like that happens it will be extremely bullish for the market. But that can be confirmed only when the current month candle will be formed. Till then the view remains bearish.

On charts S&P500 have strong support between 1280 – 1250 levels. As we can see in the next chart S&P500 23.6% retracement is at 1258 level (which is open low for this year)  38.2% retracement is at 1157 and 50% retracement is at 1075.  If 1250 gets breached on the downside and market trades below this level than in my judgment the probability of 1150 and 1075 would be 80% and 50% respectively.

The third chart I have posted is of S&P 500 quarterly chart. The purpose of posting this chart is to give readers an idea about what could be the absolute downside risk in market if Euro situation worsens. In this chart we can see that S&P500 still continues the uptrend it had started in 1974. The trend line was tested in 1982 and again in 2008 crash. If few countries will exit Euro (sooner or later they will have to due to current policies) then S&P should crash at the max to 850 levels. Therefore  if markets come down to 1075 levels it could be a good opportunity for long term investors to invest in the market as the downside from there won’t be more than 25% even under the worst case scenario.

S&P500 Quarterly chart

The next chart I have posted is of FTSE 100. FTSE took support exactly at the trend line as evident from the chart. FTSE is also forming a head and shoulder pattern as marked on the chart. The neck line for current pattern is around 4800 levels. I am sure that FSTE will test 4800 again and if it fails to hold above 4800 levels there can be steep fall which can take index to anywhere between 3700 -4200 levels.

FTSE 100

 

The next chart I have posted if Nifty 60 minutes. Nifty made a top in first week of February and since then is sliding in a downward falling channel. Nifty took support at the bottom end of this channel at 4800. Readers will remember that 4800 is also the long term trend line support for Nifty as mentioned in my previous posts. Since 4800 is the single most important support for Nifty in my understanding it would not break easily. Therefore a bounce back from here looks imminent.  Nifty may move upto 5150 levels from today’s closing level of 4920. Stop loss should be below 4800. My negative view on Nifty won’t change unless Nifty convincingly breaks above this channel.

Nifty 60 Mints

The next chart is monthly chart of Nifty. Just to give readers and idea about the extent of expected fall, I have taken the retracement of the entire move from lows of 900 to highs of 6300 level. 38% retracement would be around 4200 and 50% retracement will be around 3600 levels. I think if Nifty convincingly breaks below 4800 the probability of hitting 4200 and 3600 would be around 70% and 40% respectively. 

Nifty Monthly

The next chart is of DXY. As expected DXY have broken out of Head and shoulder formation. The target for DXY is at around 87 -90 levels.  Readers may remember I have first written about DXY in my post on 16^th June 2011. When the entire world was bearish on Dollar I saw that charts were giving a clear indication of Dollar strengthening.  

DXY

The next chart is of Euro. Euro had already broken below its support of 1.26. I think Euro have the potential to reach 1.14 levels and even lower. Once again I wrote about euro in the same post on 16^th June 2011 predicting Euro will significantly weaken.

Euro

 

Just like other currencies CNY has also started weakening against USD. Since CNY is a controlled currency I won’t hazard a guess on its level but I expect that it won’t fall below 6.25 levels in next six months.

CNY

 

The next chart is of Yen. As I have previously mentioned Yen has broken out of 5 years of downtrend. Currently Yen is retesting the trend line and this month’s pattern is a doji which may convert into a evening start by next month. I am still of the view that Yen will significantly depreciate against USD and may move up to 90 levels or even go to 100 levels. Again I wrote about this trend in my post on 16^th June much before yen started to depreciate. Although this is known as widow maker trade I will sell yen at current levels with stop loss at 74 and target of 90 – 95.

Yen

 

The last chart I have posted is of Spain’s 10 year yield. We can see that Spain 10 year yield is currently trading at 6% if the yield break out this range then it will move sharply up to 10 -12% level turning Spain into next Greece and forcing Europe to either from a Fiscal union or disintegrate.

Spain 10 Year Yield

As my last words I would caution my readers to be aware of the current volatile circumstance. It is said that in economics it takes much longer than expected and when it happens, it happens much faster than expectations.

Tech Musings - Review

In my last post on 9^th May   I wrote that gold was expected to break below 1632 levels and it will see sharp corrections. In one week gold fell by more than 100 USD and made a low of 1520. In the given chart we can see how Gold had taken support at exactly the same level it had taken last year. I expect this support to be broken and gold will move lower in days to come

Gold

The second chart is of S&P500, on 7^th May I wrote that S&P500 will fall upto 1250 levels. S&P 500 corrected sharply in last week and fell from 1365 to 1295 levels. I expect S&P to correct even further and 1220 – 1250 would be strong support zone. If the support fails to hold then this year can be extremely bearish for markets. In the given chart we can see trend which started in March 2009 has the trend line support exactly at these levels. If this trend line is breached we will see deeper correction to 1150 and 1075 on S&P.

S&P500

In my post on 4^th may I was expecting Nifty to test 4800. In barely 10 trading session Nifty corrected sharply and yesterday market made a low of 4800. If we see the given chart we can see that currently Nifty is testing the trend which started in 2002. Last year correction Nifty took support exactly at the trend line and moved up sharply. Since this is the most important trend line of the current uptrend, it would be very difficult for Nifty to break below 4800.

But once 4800 is broken we will see sharply lower levels in market. My own understanding is that we may see 4200 and 3600. If readers remember on 7^thJanuary I wrote “When I think about the current economic scenario I think the 2012 candle (for Sensex) can shape up something very similar to what I have presented in the fourth chart. I would like to caution my readers that there can be 4 -5 scenarios which looks probable but according to my understanding this is most probable scenario whereby Sensex have opened around 15.5K, will make a high of 18 -19K, a low of 11- 12K and will close the year at around 13-14K.” The first leg of this move is over and nifty made a high of 18428 and is currently trading at 16100. Looking at current macroeconomic scenario I stay hopeful that my call on nifty will come true.  

Nifty

The last chart I have pasted is of Nymex Crude. Crude is currently trading at a very crucial support level. If Crude falls below 88 – 85 USD we will see 70 USD n charts.



Crude

Commodity Updates

In my last update on gold I have mentioned that Gold was trading in no man’s zone. Although I also expected that Gold will resume its uptrend (mainly due to LTRO II) but it did not happen. Gold had clearly faced resistance at the trend line and now it had clearly broken below the support zone.

Gold Weekly chart

In the second chart we can see the retracement levels for Gold. The first retracement for gold is at 1627 and today the level has been broken. The second retracement level for gold is at around 1450 and 50% retracement level for gold is at 1330 levels.

Gold weekly chart with retracement levels

Similarly if we look at yearly chart of gold we can see that the current support is at around 1270 – 1320 levels.  Since open low for this year for gold is at 1554 level, If gold breaks below this level it will witness a steep correction to 1320 levels. I would bet that the probability of this happening is 70% - 75%

Gold Yearly chart

The next chart is weekly chart of copper. Copper is forming a massive distribution pattern of Head and Shoulder. The neck line of this pattern is at around 300 levels.  Once copper breaks below 300 the target would be 200. Copper also serves as a barometer for industrial production, Chinese economy and global economy. If Copper prices will collapse that will indicate impending slow down in global growth which means global stocks will also correct.



Copper Weekly chart



The next chart is the yearly chart of copper. This chart shows that the trend line support for copper is at around 200 which should be the logical target for copper.



Copper yearly chart



The next chart is of NYMEX crude. Crude is one of the weakest commodity chart inspite of steep run off in prices. The current year is forming a doji pattern which may change by the year end. The trend line support for Crude is at around 50. Both copper and crude are indicating that there is going to be an impending slowdown in Equity markets.

Crude Monthly chart

The next Chart is of INR. We may feel overwhelmed by the current depreciation in INR but if we look at the long term chart of INR depreciating INR is a norm rather than exception. In 1984 INR was trading at around 8 per USD and depreciated to 49 by 1998.  As we can see that the consolidation since then was just a time correction and price correction in INR was limited upto 23.6% retracement as evident form chart.

Now since INR is again trading near trend line and Indian macro picture is highly unfavorable for a currency appreciation (If INR breaks this trend line then it should appreciate substantially against USD which seems highly unlikely) I will assume that trend of depreciating INR will continue and it will depreciate steeply in coming months. 

INR Quarterly chart

 

The last chart is the weekly chart of INR. INR is forming a bearish formation and if it trades above 55 -56 level we will see 65 on charts in matter of few months.

INR weekly Chart

S&P500 - Quick update

The risk rally which started in October 4^th 2011 has ended last week. The entire trend which took S&P500 from 1120 to 1420 took seven months. Reader may remember that I wrote on 27^th September 2011 about this rally as there was excessive pessimism in the market. I must admit that this risk rally went up further then I expected. The duration of this risk rally was exactly 7 months, only 1 month more than my expectation. If I look back to a single event which caused the market to move up higher beyond expectation than it has to be the LTRO announced by ECB. I never expected ECB will ever go for Quantitative Easing.

 The given chart is of S&P500 monthly chart. Last month S&P500 formed a Doji and this month follow up can form an evening star pattern. I think one can reasonably go short on S&P with stop loss above 1425 and target of 1220 -1250.

As also mentioned in my previous post 1220 – 1250 is going to be a very strong support zone for S&P500. Looking at the current macroeconomic scenario I don’t expect this level to be broken. But if this level is broken then we will witness severe correction in market.

S&P500 Monthly chart

PS:- I have plotted the expected candle formation for the month of May in seperate box. The trend line support for S&P500 is at around 1220 - 1250 levels.

Tech Musings

Let me start today’s chart check with US. The given chart is monthly chart of S&P500. We can see that S&P is trading in a channel. The upper end of the channel is near around 1450 -1470. Therefore I don’t see S&P trading above this level in near term.  Similarly if we look at the trend which started in March 2009 the current support is around 1250. Even this year’s opening low is around 1250. Therefore 1250 is an important support for the market.

S&P500

If we look at near term chart of S&P500 1350 seems to be a very strong support. Till the point market stays above 1350 S&P can move up to 1450 levels. Once it starts trading below 1350 target for S&P will be 1250. The risk rewards do not favor a long trade on S&P500. Only if S&P goes below 1250 we will see some serious downside in the market. My current view is that we will bounce back from 1250 and trade rest of the year between 1250 – 1450 levels. The probability of a break down below 1250 would not be more then 15% -20%



S&P500

 

Similarly the support for Dow Index around 12800

INDU weekly Chart

Long term chart of Nasdaq100 indicates that it is already trading at multiyear resistance.  I don’t see Nasdaq100 trading above 3100 levels for next one year.  All the three major indices in US indicates that we are trading somewhere near top and the market will trade between the range of +5% to -15% for the rest of year.

NDX Monthly chart



The next chart is of Nikkei 225. Surprisingly Nikkei is one index which is looking good. It had broken out of 5 years of downtrend. The target for Nikkei is around 11500 and 12500.



Nikkei

The next chart is of Yen. Yen has also broken out of 5 years of downtrend. I think Yen will now start depreciating something which I have indicated last year in 16^th June post. I think yen may move upto 100 levels this year which may aid breakout in Nikkei.

Yen

The next chart is of Shangahi composite. Surprisingly Shangahi is looking poised for a up move. This up move may last upto 2600 or even go upto 2900 levels. Readers may remember that in the same post I wrote on 16th June last year I have mentioned “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”  The index indeed fell upto 2200 levels but have bounced back from there.

Shanghai compostie

The next chart is an intraday chart of Nifty. Nifty had completed 50% retracement of the up move which started on 7^th Jan from the lows of 4500 to a high of 5500. The next target for Nifty 4950 and 4800 if it falls below 5000 levels

Nifty 240 Mints chart

Second chart is weekly chart of Nifty. We can see that Nifty was trading in a channel since November 2010 till January 2012. The channel got broken in the up move and Nifty was consolidating above this level since March 2012. Today Nifty had taken support of the channel line.  Unless and until nifty breaks this channel support at 5080 level and closes below 5050 levels on weekly basis further downfall should be ruled out. My gut feeling is that we will break this level and move to 4800 in coming weeks.

Nifty Weekly chart

Next chart is monthly chart of Nifty. We can see that Nifty bounced back from the trend line support of 4500 in January. I feel that Nifty will again go and retest the trend line at 4800. Whether Nifty will break below 4800 or not is not clear at this moment.

Nifty Monthly charts

The next chart is of BSE Healthcare Index. Even in falling market We can see that Healthcare index is making new highs, Defensive investors can accumulate Healthcare stocks.

BSE HealthCare Index

The next chart is of INR.  CAD for year 2011 – 2012 was even higher then my expectation at 185 billion USD. With regulatory chaos, absence of policy initiatives, Government which have lost its will to improve the situation and a falling stock market it will be difficult for India to attract FDI and FII to the tune of 80 billion USD which is necessary to marinating balance of payment. Our forex reserves are limited to 295 Billion USD and our short term loans have for the first time exceeded forex reserve.  I think conditions are ripe where we can see rupee depreciating to 70 levels in next 3 -5  years. 

INR

The last chart is intraday chart of INR. Readers may remember that in my last post on 12^th February INR was trading at 48.50 levels and I have written that “The last chart I have pasted is of INR. INR fell from 54 levels to 48 levels and have reacted almost 61% of the rise. I think INR will have pull back from here and markets are forming a inverse head and shoulder pattern. I think the target for INR will be around 50.50 -51 levels from there they may again correct if FII inflows continue unabated.” INR have indeed depreciated rather severely in the absence of continuity in FII inflows and is currently trading at previous lows of 54.

INR Intraday Chart