Tech Musings

The first chart I have presented is the chart of Volatility index (India) which is calculated using implied volatility of Nifty options. As we can see VIX have hit all time low which indicates that market participants are uber bullish on markets. VIX is mostly used as contra indicator which may or may not help in market timings, as in past we have noticed US VIX saying at very low levels for a long time period i.e during 2005 -2007. But I think that the current macro environment is significantly different from 2005 - 2007 therefore any probability of VIX staying at low levels for long duration is going to be highly unlikely. 

The current reading of VIX was around 14% which is at all time low. I will use this as another signal that we may be nearing a cliff and we are waiting for a sharp correction on Index.

 

VIX INDIA

Second chart I am pasting today is yearly chart of Sensex.  I have pasted this chart to share a very interesting observation with my readers. Over the years I have spent in charting I have realized that psychological resistance are very important and often psychological resistance are not only in terms of price but they are also in terms of time. For example trend changes often happen with change in time. For example new trend generally emerges when a new week, month, quarter or year starts. It is often observed that one month(time period) may be extremely negative for a stock while the trend completely reverses on the onset of a new month (time period).

For example in this chart we can see that 8 years starting from 1995 to 2002 Sensex did not closed below 3000 levels.  Similarly, we can see that markets are facing resistance at 20,500 levels and from last six years markets have not been able to close above this level. I think it is highly unlikely that in the current year markets will close above this level. Therefore any upside from here will be limited in nature.

Secondly we can see that Indian markets are in structural uptrend since 1979 perfectly observing the trendline I have plotted on the chart. I have observed it almost as a norm that when stocks move way above or below the trend line they correct sideways (time correction) they correct downwards (price correction) till the stock reaches back to the trend line and the trend is resumed. 

For example we can see that in this chart from 1988 to 1994 sensex moved way beyond the trend line and it corrected sideways for next 8 years till it moved back again to the trend line and the new uptrend started in market. In fact the low of 2003 are perfectly on the trend lines. Similarly the rally which started in 2003 to 2007 took sensex way above the trend line and since than it had been almost 5 years markets are correcting sideways. Readers may observe that current support from the trend line is at around 11000 - 11500 levels. This is the reason why I have felt that any correction on the downside would be limited to 11500. Now the market may correct in two ways. Either we will have price correction where we will see markets moving downwards sharply or we will have time correction where markets will move sideways for next 2 -3 years and it will take support of the trend line and new rally can start. Looking at the current high inflation scenario it is highly likely that we will see time correction here by stocks will lose buying power due to high inflation the price will stay constant.

SENSEX Yearly Chart

I have been uber bearish on Japanese yen since June of last year.  Yen started a robust rally in February 2012 where it moved from 76 levels to 84 levels, after that yen corrected and consolidating at 79 levels since 7 months. Recently Yen has given a breakout on the upside and has moved up in last two weeks. I think this should be the 3 wave rally in USD against yen and I expect Yen weaken significantly in coming months.

 

Japanese Yen

Fourth chart shows the big picture in Yen. We can see that Yen was moving downwards 2007 and made a low in 2011. The down trend line was broken previous rally and yen consolidated above this trend line since last 7 months. I think the current rally will take yen to atleast 87 levels and may be to 94 levels in next six months. It is a very high conviction trade as per my analysis. 

Japanese Yen

Tech Musings

The first chart I have presented is 240 mints chart of S&P500. From this chart we can see S&P500 failed to break above the channel resistance thrice and the weekly close was below the trend line. The uptrend which started in first week of June now seems to be broken. The most likely retracement form here should be towards 1360 levels.  

S&P500 240 minutes chart

However if we look at the monthly candle stick pattern, the probability that that S&P500 will make a grave stone doji pattern is very high. With this in context I think the next week of trading will be choppy with market closing around the 1420 – 1430. Correction may start from next month.

 

S&P500 Monthly chart

However if index falls below 1360 then it will break the trend it was in since march 2009. S&P500 had already broken the trend line more than once during the last four years but each time it pulls back above the trend line.  We need to see whether this time the breakdown is conclusive or just a whipsaw.

S&P500 Weekly chart

Technology shares have been very weak after recent earning announcement by Intel and Google.  NASDAQ 100 had almost fallen 3% more than other index. Nasdaq 100 is already challenging the long term trend line. If markets corrects further from here technology stocks will be hardest hit and Nasdaq will be the first index to break below the uptrend. 

Nasdaq 100  Weekly chart

Dow Industrial has already broken below the trend which started in May 2012

Apple which has 15% weight in Nasdaq 100 and almost 4.5% in S&P500 has turned significantly bearish. It seems that Apple may correct up to 450 – 500 levels dragging index with it. 

Apple Monthly chart as on 9th October 2012

Similarly Amazon also failed to break above the resistance line and seems ripe for significant correction in time to come.

Amazon Monthly chart

I have misread my previous chart on Euro where I felt that Euro would break above 1.40 levels. Euro is sliding in this channel and facing considerably resistance at the upper end of the channel.  Further gains in Euro are possible only if Euro breaks above 1.32 levels, otherwise it is entirely possible that Euro may turn back from here. 

Euro Weekly chart

Summary-

1. Markets seem to be near a turning point. It may happen that the uptrend which started in March 2009 may end by December. Gains from here should be limited in nature and therefore strict stop loss is warranted for long positions.
2. If S&P500 breaks below 1420 target will be 1360 -1380 and if market breaks below 1340 -1360 levels we can see 1100  to 1200 levels.
3. Long positions with strict stop loss can be taken only when S&P500 breaks above 1480 levels on weekly closing basis (but with strict stop loss)
4. Technology sector seems to be week. Technology sector had highest growth rate, but during current earning season it had reported negative growth of 10% in EPS.
5. Apple, Amazon and other high flying tech stocks can be in for a big correction.
6. Euro may face significant resistance at current level and further up move will happen only if it closes above 1.32 levels on weekly closing basis.

Nifty - quick update

Nifty is forming a distribution pattern since 21^st September. In the given chart we can see head and shoulder pattern. If Nifty gives a weekly closing below 5620 the markets will sell off aggressively toward 5450 levels.

Nifty 30 Minutes Charts

In the given chart we can see that Nifty had been moving in a channel since this rally started in May 2012. Nifty felt resistance at the upper end of the channel @ 5800 levels and have turned back from there. Now looking at both these charts the probability of markets selling off is very high.  Traders should keep tight stop loss. Any dip will be a good buying opportunity as I expect markets to take support at lower end of trend line i.e. 5400 levels

Nifty 60 Minutes Chart

Summary:-

Markets will sell of aggressively if nifty closes below 5600.

Markets should find support at 5450 levels.

Any fall should be a good buying opportunity with stop loss of 5375 on Nifty.