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.