Tech Musings:- Crude Oil

Crude oil has completely crashed in last three months. WTI crude made a high of 107 USD and had fallen to 66.15 as per Fridays close. Brent crude had fallen from a high of 115.66 in June 2014 to a low of 70.15 as per yesterday’s close.

My call on crude would were mixed for the Year. The first scenario I envisaged at the beginning of the year was the one which has fructified in the market. On 10^th January 2014, I wrote the following, “I have been maintaining a bearish view on crude oil since last year.  In my last update on Crude oil on 16^th November 2013 I wrote, ‘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. Crude oil indeed closed the year below 100 levels and has corrected sharply in the first nine days of 2014.

If we look at the given chart of Brent Crude we can see that it is forming a evening star in a yearly chart. The impact of this pattern is going to be profound and I won’t be surprised if Brent crude sees more than 30% correction in current year.  Similarly the second chart is a yearly chart of WTI crude. WTI crude is having a strong support at 87 – 90 levels. Once this level is broken I am expecting WTI to fall upto 70 USD levels in current year.”

In my second post on crude written on 22^nd June 2014, I wrote the following, “I have been continuously bearish on crude oil since last one and half year and my view was completely wrong. In last two years crude oil has largely stayed in a range and refused to correct. In my last post on crude written on 10^th Jan 2014 I called for a 30% correction in price of crude oil.  In that post I wrote, “Similarly the second chart is a yearly chart of WTI crude. WTI crude is having a strong support at 87 – 90 levels. Once this level is broken I am expecting WTI to fall upto 70 USD levels in current year.”

Although the sell call was never triggered the view had proven completely wrong as crude made a bottom of 91.26 and have moved up 15% since then. If we look at the current chart of crude oil we can see that Brent crude has been consolidating between 100 to 116 USD levels. Any break out above 120 will lift the prices to 150 and beyond

Similarly if we look at the chart of WTI Crude it is consolidating between 90 to 112 levels. Any breakout above 115 will move the prices to 150 and beyond. If we look at the long term chart of crude oil we can see that it is trading in a channel. The support for this channel is at 90 USD and the target for the breakout come at 170 – 200 levels. This ensures my view that once crude moves above 120 we will see swift upward movement in prices of crude oil.” 

If I analyze my call with advantage of having hindsight information I think it was the sucker rally in crude which got me in and made my change my view.

For advantage of my reader I will define what sucker rally means. “A temporary rise in a specific stock or the market as a whole. A sucker rally occurs with little fundamental information to back the movement in price. This rally may continue just long enough for the "suckers" to get on board, after which the market or specific stock falls.”

Since the beginning of January 2014 till the first week of April 2014 crude was trading within a narrow range. Crude moved up sharply from 99 USD to 107 USD in next two months. Which brought the made me feel that the resistance of 115 on WTI may be taken out and crude will start multiyear Bull Run hence I changed my call.

Although, in my second post I have continuously mentioned that crude will move up sharply only if it breaks above the resistance of 115 (WTI) and 120 (Brent) which never happened, I can claim that the call was never triggered but the truth is that the sucker rally in Crude oil got me in. 

If we look at the current chart of crude oil we can see that it had broken down from the consolidation pattern exactly as I have been mentioning over last two years. The targets for this pattern have been more or less achieved. Any further fall in crude prices cannot be ruled out but will happen only after some pull back or consolidation.

Tech Musings:- Precious metals.

I have been bullish on previous metals since almost one year now. In my previous post on previous metals written on 14^th February 2014, I have written, “Gold and silver has both given a breakout as expected in my post on 2^nd Jan 2014. I wrote, “If we look at the first chart of gold It seems that gold will bounce from here. Traders can keep a stop loss of 1180 and go long on gold. Similarly traders can keep a stop loss of 19 and go long on silver at cmp of 20.10.” 

In the same post I also wrote that, “Although it is too early to take a buy call on them, I think that both metals are poised to move up sharply.”

If you have observed the way prices have moved over last two months, you will realize that my apprehensions about being too early in the call proved completely correct. The price of gold and silver both moved up and crashed to retest the previous lows. Gold fell from 1280 to 1240 and silver fell from 20.50 to low of 19.0175. Since then there has been a constant up move in prices of both gold and silver.

I expect gold and silver both to move up from these levels. The target for gold should be around 1425 – 1500 and for silver around 24 – 25 USD an ounce.

Gold and silver have both hit my stop loss given in the call on 2^nd Jan 2014.  I have never expected that gold and silver will break below their multiyear trend lines as evident from the chart.

If gold and silver closes below 1200 and 17.00 USD respectively then I will suspect that we are in a multiyear bear market form previous metals. In that case the target for Gold will be 1000 USD and target for silver will be below 14 USD.

But if Gold and silver pulls back and gives a closing above 1200 USD and 17 USD respectively before the closing of December 2014 then there are fair chances that we have already seen a long term bottom in both these precious metals and they may move up considerably from here.

Right now the correct strategy will be to wait and watch closing prices for these metals. 

Tech Musings:- Equities

When I wrote my previous post on US Index on October 14^th 2014, SPX was trading at 1906 levels after falling from high of 2020 to a low of 1874. I was expecting a further correction towards 1700 – 1650 levels but that was not to be.

SPX fell sharply from 1906 to 1820 and then bounced back to make new highs above 2020 levels. In a single month SPX saw a 20% movement which had happened for the first time since 1993. It was unusually volatile month for SPX.

If we look at the current chart of SPX nothing has changed. The index is still trading at the upper end of the channel. It is neither breaking the channel on the upside nor correcting on the downside. As per my experience as a technical analyst I think that SPX is just passing its time we will see major movement in the market only in next year. My view on SPX still holds that unless SPX breaks a the channel we are in for some serious correction in the market.

 Nifty had fully achieved the target I have mentioned in my post written on 12^th March 2014. In that post I gave the following predication, “The last chart is the daily chart of Nifty. We can see that Nifty is trading between two parallel channels. Nifty will face resistance at 6700 levels i.e. the upper end of the channel. Once it breaks above 6750 – 6800 the target for this channel come at 8000 – 8200 levels.” 

Nifty is currently trading at  8500 levels and have over achieved the targets I thought it would achieved which themselves looked ridiculously high at that point in time.

If we look at the given chart of Nifty we can see that we are currently critically poised at the upper end of the channel. Three scenarios looks probable from here.

1)      Nifty will break above the channel and will move up towards 12500 levels in next five years.

2)      Nifty will pull back from the channel and will consolidate for a year or more before breaking above the channel.

3)      Nifty will continue to chug along the upper end of the channel and will move up slowly just like S&P is doing.

At this point in time I am not sure which one these scenarios will play out. We will have to wait for market to reveal further moves. 

One sector which is looking exceptionally good is PSU Bank Index. I think we are going to see some fundamental change in the way PSU banks have been managed in last 60 years. I think current government is determined to unshackled PSU banks from government slavery and they will do phenomenally well in coming years.

If we look at the given chart of PSU bank index we can see that it is breaking out of big inverse head and shoulder pattern. Target for this breakout are around 6000 levels or almost 50% higher from here. 

Tech Musings: - Currencies

I have been constantly bearish on AUD since last two three years . In my first post on AUD written on 19^th December 2012, I wrote, “Next chart is AUD chart; we can see that AUD is trading very near its long term support trend line. AUD has multiple resistances at current levels and any break out from current levels of 1.05 will face resistance at 1.10 levels. I don’t expect AUD to break above 1.10 levels.”

AUD turned out exactly as predicated. AUD never moved above 1.0599 and had fallen o 0.856 as per Fridays closing. In the current chart we can see AUD is forming a head and shoulder pattern and had almost broken down. The implications of this breakdown will be severe and it may fall up to 0.70 levels and below as I have mentioned in many of my previous posts.

Similarly my bullish call on USD is also working well. USD had moved up from 80 levels to 88.356 levels as per Fridays closing. If we look at the current chart we can see that USD is going to face major resistance at 93 levels. So we expect a further 7% - 8% upside in USD before any serious correction began. 

Euro has also moved down from 1.3550 levels to 1.2452 levels as predicted in my post written on June 10^th 2014. If we look at the given chart on Euro we can see that there is some support for Euro at 1.20 – 1.21 levels. Any further downside in Euro will happen only if euro breaks below this level. 

In my post on 20^th August 2014 I have mentioned that, “Yen had consolidated for almost a year since that massive bear market and recently it broke out of that consolidation. I expect the next wave of correction to start in Yen which will target 108 – 115 level and beyond.”

Yen has fallen to 118.63 from 102 levels and my call was spot on. If we look at the current chart of yen we can see that it had broken out form a long inverse head and shoulder pattern. The target for this breakout may push Yen below 130 levels in months to come. 

My last call is on INR. If we look at the given yearly chart of INR we can see that INR has consolidated for the entire year and it is forming a doji pattern. Now Doji can suggest a reversal pattern or a continuation of the current trend. What I understand from the given chart is that next year INR will not have a sideways movement but it will move up sharply or correct sharply. 

The second chart is a weekly chart of INR. In this chart we can see that INR is trading at the lower end of the channel and it had been taking support of this channel may 2014 but had never broken the channel. Similarly the current pattern in weekly chart suggests the formation of inverse had and shoulder pattern.

If we connect the dots then Weekly chart of INR suggest that the INR will depreciate sharply against USD in next few months, while the yearly chart of INR suggest that next year INR will be in a trend compared to a consolidation it saw in year 2014.

Hence I will bet that INR will see some sharp depreciation in next year. Traders can go short on INR with stop loss of 60 and a target of 65 and beyond