Tech Musings :- US markets

S&P500 has moved up from 1690 to 1790 levels in last one month. In my previous post on 6^th October  I wrote, “I am Expecting sharp rally in US market (around 60% probability) and trader should    go long on US stocks with stoploss of 1650 on S&P and target of 1820. CMP @ 1690”

S&P since then made a low of 1660 and had moved to 1798 as of now. If we see the given chart we can see that S&P has been trading within a channel and the upper end of the channel is around 1810 – 1840 levels. I firmly believe that S&P 500 will peak out at these levels before the end of this year. From next year there should be a sharp correction in S&P500 and it may fall to 1500 – 1550 levels. 

I think the probability of this scenario playing out is more than 70%.

Tech musings Commodities

The first chart I want to discuss is that of crude oil. Crude prices have seen almost a 20% correction in last two months and are currently trading at 94 levels.  In my last post on crude oil on 10^th August 2011 I wrote that, “Lastly crude oil has broken out the consolidation pattern it was in since April 2011. I have not expected an upside breakout of this triangle. If crude oil persist above 95 levels than we will see sharp up move in prices. Although my gut feeling is that the breakout is a whipsaw and crude prices should fall below 100 USD before year ends given that there are no unfavorable geo-developments.”

Crude oil moved up to 115 levels and has crashed to 93 from there. I still believe that crude oil will close the year below 100 USD level and see a sharp correction in next year. The target for Crude stays at 70 dollar.

I have been bullish on gold and in my last post on 14^th September  I wrote, “If we look at the given chart of gold we can see that gold has done its 50% retracement at 1307 levels and I expect gold to start a new upmove from these levels. Traders can buy gold at CMP keeping 1270 as stop loss and 1485 as target.”

Since then gold has been range bound and had not shown any tendency to move up. Although my stop loss has not been trigged as of now, nevertheless the probability of an up-move has diminished greatly for both gold and silver. All long trades on gold should keep 1270 as a strict stop loss on a weekly closing basis. If gold moves above 1350 it may go to 1425 and 1475 levels.

On the contrary, If gold fails to move up in the current month than it is highly likely that we will see a sharp downside in gold and it may fall towards 1000 USD levels.

Similarly traders should keep a stop loss of 20.50 in silver on weekly closing basis. If silver falls below this level there is a high probability that we will see a sharp down move in prices towards 14 – 16 dollar level.

Tech Musings

INR moved up sharply in last two weeks and made a high of 63.9075. I had given a buy call on INR in my previous post on 28^th October 2013 when INR was trading at 61.46. If we look at the given chart I think there is one more up leg in INR which will take INR to 65 levels.  At this point in time, I am not sure whether INR will move up to 70 or fall back again to 61 or 59 from there.

The second chart is a yield chart of 10 year GOI treasury bonds. In my last post on 18^th August 2013 I wrote “Indian ten year treasury rates moved up 8.265 to 8.895 in just two weeks.  I have mentioned in my post on 4th August 2013 that interest rates in India are all set to move up.  Once interest rates break above 9% mark there is nothing to stop interest rates form going up to 10% – 10.5%.  I think it is only a matter of time before banks will be forced to hike deposit rates.”

This scenario exactly came true and RBI was forced to hike Repo rate twice since then. If we look at the current chart we can see Interest rate breaking out of a bullish formation above 9% interest rates should target 11.5% to 12% in next two years but I will reduce my target to 10.5%.

I have been constantly bearish on Indian markets but the markets have eluded me completely. I failed to understand why Nifty was not breaking below the trend line and falling sharply.  When I wrote my last post on 18^th august sensex was trading at 18700 and made a low of 18000 on 21^st august. 

I was all but sure that this time market will give a monthly closing below the trend line and it will break towards 16000 levels. But contrary to my expectation sensex moved by 3200 points, still I think that my view that Indian markets will not see a new bull run in next two year holds true. I will try to explain this with the use to three charts. 

The first chart is a monthly chart of BSE sensex. We can see that market has reached and slightly surpassed the previous top made in January 2008. Second we can see that the trend line (marked in yellow) for the current uptrend is now at 19000 levels. If we get a monthly closing below 19000 we will see markets crashing to 16,000 levels or below. 

The next chart is a quarterly chart of Sensex. Here we can see that primary trend line for sensex is now giving support at 13500 levels. It is quite possible that any sell off in sensex may reach that level.

The last chart is also a monthly chart of sensex and shows us the alternative view as to what if sensex breaks above 21500 levels. If we look at the given chart we can see that Sensex is trading between two channels. The lower end of the channel is at 12500 levels while upper end is at 23500 to 24000 levels. If sensex gives a monthly closing above 21500 it may go to 24000 to 25000 levels but that should not be constructed as a start of a new bull market. According to me a new bull market will start only when Sensex breaks above the channel line which is above 25000 and in that scenario we will see markets moving to 50,000 to 60,000 in 5 – 8 years. 

I think we will ultimately breakout but only after a sharp correction in prices and a time lag of two years from today.  I would like to mention that 2 years is just a rough estimation of time markets should take to breakout.