S&P500

After the continuous wait of almost 20 months S&P now seems ripe for a fall. In all my previous updates of last 20 months I have maintained a bearish view on the index. The direction of the move was pretty evident from the charts however the timings were not. But now it seems that everything has resolved and markets have made their mind to correct sharply. 

If we look at the first chart we can see that S&P has clearly broken out of the channel and now and should be in a free fall below 2040 and 1980 levels. 

In the second chart we can see the retracement levels for S&P500 are at 1836, 1651 and 1502 level. I think this time we are going to see a deeper cut in the index. This is collaborated by the charts of global market index most of which are looking extremely bearish.

S&P500

I hope finally the fall in global equity markets began today. As readers know I have been bearish on equity markets since starting of 2014. In my last two updates on 11 January 2015 and May 7 2015, I have maintained my bearish view.

If we look at the given chart of S&P500 index we can see that from last 4 weeks S&P500 has broken below trendline. Based on my intuition I think this time the breakdown will work and will not be a whipsaw like we saw in September 2014.

The next chart is a quarterly chart of S&P500. Although we have got one more trading day left before we close this quarter, I am guessing that S&P will form a gravestone doji in the quarterly candle. In order to form this pattern, S&P500 will close below 2067 and preferably between 2040 – 2067 in tomorrow’s trading. Once this is confirmed we should have a nice follow up downtrend in the market. 

The third is of EURO STOXX50. We can see that the index is trading at 16 years resistance and it won’t be easy for the index to move above it looking at the news flow emanating form Eurozone. On the contrary it looks ripe for a substantial correction.

Whether we are in a big market correction or not can be confirmed only once S&P breaks below 1980, but right now looking at how global equity index, news flows from Greece and other a market rally which is more than 6 years old I think  correction is highly likely.

Summary:-

1.       Its advisable for long only buyers to move some part of the portfolio in cash and initiate some hedging for the portfolio.

2.       Stop loss for short trades can be kept a today’s high or 2100 levels.

3.       Correction in global  equity market looks highly likely in next six months to one year

4.       The magnitude of the correction may surprise most of the market observers; I personally feel it can be as bad as 20% or a 25% cut. 

Indian Rupee

In my previous post on INR written on 14^th January 2015, I wrote, “INR is forming a large inverse head and shoulder pattern on charts. If this pattern has to come true than INR will fall/consolidate between 60 -64 levels for next few months before breaking out above the neckline and proceeding towards 70 levels.”  

I was expecting INR to consolidate between the ranges of 60 – 64 for few months. INR took almost 6 months to consolidate at these levels and is now ready for a breakout.

If we look at the given chart INR has completed the right shoulder formation and its highly likely that INR will move to 70 levels in next few months.

Chart of INR as pasted on 14th Jan 2015

Chart of INR as on 16th June 2015.

Summary:-

1.      Any break out in INR above 64.50 levels on weekly closing basis will see a rapid up move towards 70

2.      If INR breaks 70 the next target can be as high as 75 – 78.

3.      The probability of INR falling sharply over next 6 months is very high. 

US Interest rates

In my previous post on US 10 year yield, I was excepting interest rates will break the channel and move up to 3.25 levels.  This call went totally wrong as interest rates not only fell but made a new low of 1.65 in January 2015.

If we look at the current chart interest rates are poised to move up sharply. In the daily chart we can see an inverse head and shoulder pattern which is already broken. The target for this pattern comes at 3.25.

In the weekly chart we can see a larger inverse head and shoulder pattern forming with its neck line around 2.8% to 3.0% level. A breakout of this pattern will take interest rates to 4% level in next 1 – 2 years.

In the third chart we can see that interest rates are trading at the upper end of a downward sloping channel. If interest rate breaks above this channel the target will be around 4% or higher

The sharp up move in interest rates is not limited to US alone. Most of the developed countries are witnessing sharp up move in interest rates.

I am pasting the chart for your reference. 

Summary:-

1.       Global interest rates are on upswing.

2.       Inflation may pick up.

3.       Bond buyers will be in for a massive correction

4.       US interest rates will move around 3.25%  in one year and beyond 4% in 2 – 3 years.

Nifty

In my previous post on Nifty written on 30^th April 2015, I wrote, “Indian markets have mostly moved sideways in last four months and formed a head and shoulder reversal pattern. If we look at the daily chart of nifty we can see that Nifty is currently trading at a very crucial support of 8100 - 8150 levels. Once Nifty breaks below 8100 level the next support for nifty is in the range of 7700”

Nifty made a low of 8000 and bounced back to 8500. The charts patterns have become much more apparent since then. If we look at the first chart we can see the head and shoulder forming clearly on the index. Any breakdown below the neckline of 8000 will push nifty towards 7000 - 7200 levels. 

In the second chart we can see the downward sloping channel. Unless and until Nifty breaks above 8500 short term upside should be ruled out.

The last chart is the quarterly chart of Sensex. We can clearly see index trading between two channels. As we hit the upper end of the channel we are seeing a correction. Since March 2013 this is the first quarter after 9 consecutive quarters of up move that we are having a negative quarterly candle.

I don’t expect markets to move up significantly any time soon. At best markets will be range bound between 7000 - 9000 levels for 12 – 24 months, before they finally break above the channel resistance and we will see index doubling or tripling in next 5 years after that.

Summary:-

1.       Sell market below 8000 on weekly closing basis

2.       Buy market above 8500 on weekly closing basis.

3.       Market should be range bound for 12 – 24 months

4.       Market range should be 7000 – 9000

5.       We should see a bottom formation at 7000 levels in next 12  - 18 months.

Market Musings:-

I think they way things are playing out this could be the best outcome for NaMo govt.  The market started rallying in 2013 at best a market rally can be sustained for 4 – 5 years. If the markets will rally continuously we will see exhaustion around 2017 – 2018 and a crash in 2019 which will be the worst thing for reelection of present govt.

So the best thing would be a market breather where by market consolidates and do time correction for next two years and start a rally in 2017 which peaks out in 2019 -2020. When people will see market doubling in two three years this will pull the economy with it and the chances of reelection of the present govt will be magnified.

I think the economic policy adopted by NaMo also focus on building long term competitiveness instead of cheap market rally fueled by easy money. The economy will take time to rebound but this time the rebound will last longer and India will emerge much stronger.

Global Equity markets.

I have been bearish on the US markets since last January but the markets have completely eluded me. In my previous post on S&P 500 I wrote, “I still think that a correction in S&P500 is imminent. Stock returns are not path independent, which means that the returns of current year are strongly going to be influenced by past performance trajectory. After 5 year bull market a correction is highly likely and technical support their view. I am still bearish on market and will remain so unless S&P500 breaks above the channel line.”

Although nothing has changed significantly since then but while going through the charts of global equity index I found an eerie similarity between them. Most of the global index have hit the resistance of the long term channel line and are looking ripe for correction.

Again a correction may occur tomorrow or after 12 months but the upside from here is extremely limited while the downside can be massive. Hence caution is warranted.

Nifty

Indian markets are taking breather after a 40% up move in last year. In my previous update on Nifty given on 11^th January 2015, I wrote the following, “Nifty is trading at significant resistance and may correct from current levels before it breaks upward.”

Indian markets have mostly moved sideways in last four months and formed a head and shoulder reversal pattern. If we look at the daily chart of nifty we can see that Nifty is currently trading at a very crucial support of 8100 - 8150 levels. Once Nifty breaks below 8100 level the next support for nifty is in the range of 7700. 

If we look at the weekly chart of nifty we can see that made a top exactly at the upper end of the channel. Since Nifty had not been able to break above the channel most likely it will correct toward the lower end of the channel. Hence I expect Nifty to correct up to 7700 levels before we see any meaningful upside.

If we see the larger pattern on Nifty in the monthly chart we can see that Nifty took resistance at the parallel channel, and pulled back from there. The resistance for nifty is firmly established at 9000 while the support of the long term trend line is at around 7000.

If nifty breaks above the resistance it will see a very rapid up move of 30% – 50%. Which I don’t think is possible in current scenario. Hence my best case assumption is that nifty will move in the range of 7000 - 9000 for atleast 6 – 12 months or more before breaking out on the upside.

If market corrects and falls below 7500 (I think there is good probability of this happening)   it will be a golden opportunity to accumulate good stocks for long term investments. 

Summary

1.    The upside in Nifty is limited to 9000

2.    The downside in Nifty is limited to 7000

3.    Nifty have a support of 8100 – 7700 – 7000

4.    Nifty will spend 6 – 12 months or more in this range.

5.    Long term trend of nifty stays up.

6.    If nifty breaks below 7500 it will be a great buying opportunity. 

Shanghai composite

Shanghai Composite has almost moved up by 90% since my last call given on 18th September 2014.   Even in my previous update on 11^th January 2015 I mentioned the following, “I expect the up move to continue in Nikkei while Shanghai should see some stiff resistance at current levels. Once Shanghai breaks above 3500 level it can move significantly higher.”  

The next target for Shanghai composite is 4300 and 4900. I think some time and price correction are likely. The long term trend for Shanghai remains up and we may see new highs going forward. 

Currencies

DXY has also reached my medium term target of 95 which I gave in my post written on 16^th June 2011. In that post I wrote the following, “DXY:- Looks like it will break out of 26 years of down trend and will move up to 100 levels in next 2 -3 years.” When I gave that call DXY was trading at 74 levels with a target of 100.

DXY recently made a high of 95.5 and had almost hit the target level. If we see the long term chart of DXY we can see that it is trading a 36 years resistance line hence I expect some correction and pull back in DXY. Alternatively if DXY can break the resistance and move towards 100 levels then the target for DXY will be around 120.

My long standing targets for Australian dollars have come true.  In my post on 11^th September 2011, I wrote the following, “Below is the Australian dollar chart. Its very near to its long term support and warrants a sell with a stop loss of 1.08 and target of 0.92 and 0.86. Sell off in AUD will also indicate a sell off in commodities.” 

In further update I wrote a post on 6^th July 2013 in which I wrote the following, “AUD has broken below 38.2% retracement and is not showing any strength. Looking at the strength in DXY it is completely possible that we may see further correction in AUD. The next support for AUD is around 0.85. Ultimately the target for AUD is around 0.74 – 0.75.”

Since then I have been continuously bearish on AUD. Finally AUD is nearing my targets and is currently trading around 0.777 levels which is very near to its long term support. If AUD falls below 0.70 levels on monthly closing basis the next target can be as low as 0.50.

I will also assume that we should also see a good pull back before we witness any further downside in AUD

Similarly CAD has also exceeded the target I first mentioned in my post on 1^st June 2012 and reiterated my call on 3^rd March 2013. In that post I wrote the following, “Next chart is CAD. I have been bearish on CAD since June 2012 and reiterated my call on 19^th December 2012.  I admit that CAD took longer than expected to break out but now it seems that it may breakout in next few months. If CAD beaks above 1.05 we will see a 1.20 levels by the end of the year.”

CAD recently made a high of 1.2676 and have completed 50% retracement of the entire fall. As per my reading CAD should see some strong pull back from the current levels. Alternatively if CAD breaks above 1.30 levels it can move up 1.45 and 1.60 levels in next few years. 

One of my calls which I am most proud of is my call on Euro. I first gave bearish call on Euro on 16^th June 2011 and have continuously maintained my bearish stand on Euro since then. I wrote the following in my post written on 2^nd October 2011, “If we look at the long term chart of Euro we can see that Euro is trading in a downward sliding channel. As expected Euro corrected form 1.43 levels to 1.34 levels in September. I think Euro will continue to correct in coming time and it should fall up to 1.15 levels and it can even go to parity with USD as the long term support line rest there.”

Euro recently made a low of 1.1098 and had achieved the target I have sent almost 3 years back. If we look at the given chart of Euro, it has strong support at 1.10 levels as it completes 50% retracement of the entire rise. Looking at DXY chart and other currencies I think Euro can find strong support at given levels.  Alternatively Euro can fall below 0.85 levels if it goes below 1.10

Summary:-

1.       All of the currencies have achieved long term target I have given in last 3 – 4 years.

2.       DXY is facing strong resistance at current level.

3.       Ideally we should see meaningful pullback in DXY before it moves up any further.

4.       AUD, CAD, Euro and GBP may see some strengthening going forward.

5.       I am assuming that bull market in DXY will continue after pull back and it will break 36 years long pattern and will move towards 120 levels and beyond in next 5 years.

6.       I have continuously maintained that in technical analysis it is possible to get the direction of an asset correctly almost 80% of the times but its very difficult to get timing right even 30% of the time. Hence if one have patience and is ready to endure some volatility technical analysis can be a wonderful tool for long term trading/investments.

Emerging Market currencies.

INR is looking extremely interesting at the current juncture. INR is forming a large inverse head and shoulder pattern on charts. If this pattern has to come true than INR will fall/consolidate between 60 -64 levels for next few months before breaking out above the neckline and proceeding towards 70 levels.  If in any circumstance INR falls below 60 than this pattern would be rejected and something else would be happening in INR.

After continuously strengthening against USD for last 6 years, it seems Yuan is also looking ripe for an up move/devaluation against USD.

Copper

I last wrote about copper on May 9^th 2012. Back then I was expecting a sharp decline in copper prices to 200 levels.  As you can see from the previous post, copper was forming a inverse head and shoulder pattern and I was expecting it to break down from that pattern.

Instead of breaking down copper went into sideways move and it took more than 2.5 years for copper to break down.

If we look at the current chart, copper monthly chart resembles crude monthly chart to a large extent. Copper has also given a massive break down from neck line. I expect sharp fall in copper in this year. 

Emerging market bonds

The first chart is monthly chart of Emerging Market bond ETF. If we see in this chat it looks like a long term reversal pattern. Once EMB breaks below 100 levels we may see a multi month bear market in emerging market bonds. 

Similarly if we look at the Asian Dollar index we can see that Asian currencies have already broken below multi-week support.  The next support of Asian currencies is at 106 levels. Once that support is taken out most of the Asian currencies will see sharp depreciation against USD. 

GOLD

Non risk averse trades who are not afraid of hitting another stop loss on gold can buy the gold at CMP. If we look at the daily chart of gold it seems to be forming a reversal pattern. Any breakout of 1250 will lead gold to 1300 to 1350 levels.

In the weekly chart we can see that gold is very near to breaking the downward sliding channel. In case gold moves above 1350 or beyond it may have completed a long term correction which lasted almost 3 years from August 2011 to January 2015 and resume its uptrend or at least give a significant upside from current levels. 

Summary:-

1.       Buy gold at CMP of 1240

2.       Stop loss at 1170

3.       Target price at 1350 and beyond. 

2014 Yearly Recap

I  would summarize the calls I made in last year and add my views on them for current year. but before i start with the recap let me share some of my insight regarding the problems i faced using my calls for trading. 

Musings:-

Since I have become an active trader, I have understood that giving calls is very different form trading them. While giving calls you don’t have any impatience as you are not losing money even if the calls are initially not working. You can sit them out. For example I first gave a buy call on Shangahi Composite in June 2013 and the index did not move for next 15 months. But when it started moving in September 2014 it went up 40%+ in short span of 4 months.

Its only possible to get these kind of moves if you have lot of patience, faith and you are ready to lose small amount of capital and still stick to your call.

Since fund managers are evaluated on their yearly performance it may not be entire feasible to trade such long term calls as the investor and the evaluator or the consultant may not have patience to wait. 

Let us first look at the disappointments for the year.

S&P500:-  

What I expected:-

I have been bearish on US markets since quite some time now. I had a strong conviction that after a strong rally in 2013, 2014 will be a year of correction. I gave a sell call on S&P500 in January 2014 at 1850 levels. The primary reason was that S&P500 is trading at the upper end of the channel and unless it decides to break out of the channel a correction is very much likely.

What happened:-

The index kept on chugging along with the upper end of the channel line instead of correcting. The index gave a return of 13.8% for the year 2015.

What I expect:-

I still think that a correction in S&P500 is imminent. Stock returns are not path independent, which means that the returns of current year are strongly going to be influenced by past performance trajectory. After 5 year bull market a correction is highly likely and technical support their view. I am still bearish on market and will remain so unless S&P500 breaks above the channel line. 

Gold & Silver:-

What I expected:-

I have been expecting rally in precious metals since September 2013  and reiterated my call on January 2014. I have been constantly bullish on the metal since then and the market has completely deluded me.

What happened:-

Both metals stayed in consolidation/ correction mode and both metals hit my stop loss.

What I expect:-   

I believe that both metals will resume the rally once sometimes in this year. I will be bullish on Gold once it gives a monthly closing above 1250 and on silver if it gives monthly closing above 20 USD.

My Hits for the year

Dollar Index:-  

What I expected:-

I have been bullish on US dollar since June 2011. I wrote, “ DXY:- Looks like it will break out of 26 years of down trend and will move up to 100 levels in next 2 -3 years.”

What happened:- Although, it took time for Dollar to take off, it took off with a bang. This year DXY went up from 80 to 92 and rallied more than 15%.

What I expect:- DXY faces a major resistance at 93 – 95 levels and once that is surpassed on monthly closing basis DXY will move towards 100 and beyond. 

Euro:-  

What I expected:-

I have been consistently bearish on Euro for last two years and gave a sell call on Euro in the same post. I gave a sell call in Euro when it was trading at 1.38 with a target of 1.30, 1.20 and below that.

What happened:-

Euro crashed form 1.38 levels to 1.18 levels.

What I expect:-

I expect the downtrend in Euro to continue after pull back and it should eventually move towards partity with USD.

CAD, GBP, AUD, CHF, JPY SEK:-  

What I expected:-

Similarly I have been bearish on all these currencies against USD since last two years and they all fell significantly against USD in 2014

SEK (call given on 20^th August 2014@ 6.8759)

Yen (call given on 20^th August 2014 @ 102.89)

CAD (call given on 2^nd January 2014 @ 1.06347)

GBP (Call given on 11^th April 2014 @ 1.6650)

AUD (Call given on 6^th July 2013 and reiterated on 26^th September 2014 @ 0.9064 and 0.85376)

CHF (call given on 26^th September 2014 @ 0.9492)

What happened:-

I have been bearish on most of these currencies since last 2 – 3 years, most of them started correcting in 2014 and saw large down moves.

SEK fell from 6.8759 to 8.0580

Yen fell from 102.89 to 120

CAD fell from 1.06347 to 1.18

GBP fell from 1.6650 to 1.51

AUD fell from 0.85376 to 0.81

CHF fell from 0.9492 to 1.0143

What I expect:-

I expect the broad based selling against USD to continue with some significant pull backs and all of these currencies will continue to slide.

INR:-  

What I expected:-

My calls for INR has been mixed in current year. I gave a buy call on INR on 9^th May 2014 with a target of 57. INR fell to 58.33 but then moved up to take my stop loss of 61.30.

I gave a sell call on INR at 9^th September 2014. INR was trading at 60.6050 and my target was 63.

What happened:-

INR depreciated mildly against USD and was one of the strongest of all currencies. It closed the year at 63.50 levels and hit my target.

What I expect:-

I expect INR to deprecated once it falls below 64 to USD and move towards 70.

Nifty:-  

What I expected:-

I have been bearish on Nifty since November 2014, After staying bearish for last 4 years I turned bullish on Indian markets and expected them to break out and move from 6500 to 8200 levels in my post written on March 12, 2014

What happened:-

Nifty closed the year 8282 levels and made a high of 8626 levels. That was almost 32% higher from my call level.

What I expect:-

Nifty is trading at significant resistance and may correct from current levels before it breaks upward. I believe that we are in a long term bull market in India and will see markets going significantly higher in next few years.

Shanghai Composite and Nikkei:-   

 What I expected:-

I gave a buy call on both these index on 18^th September 2014. Shanghai was trading at round 2315 levels while Nikkei was trading at around 16067 levels.

What happened:-

Shangahi composite moved up more than 40% in last 6 months and made a high of 3325 while Nikkei moved up from 16000 levels to make a high of 18030 levels. As readers may remember I gave my original buy call on Nikkei on 16^th November 2012 when it was trading at 8000 levels.

What I expect:-

I expect the up move to continue in Nikkei while Shanghai should see some stiff resistance at current levels. Once Shanghai breaks above 3500 level it can move significantly higher.

Crude Oil:-

What I expected:-

My call on crude could have been one of the best call in my blog till date. I gave a sell call on crude on 16^th November 2013 when it was trading at 115 and reiterated my sell call on 10^th January 2014.   I changed my call due to a sucker rally and changed it to buy if it breaks above 120 in June 2014.

What happened:-

Crude oil never broke that level and had one of the most spectacular fall of last five years falling more than 55% from 115 to sub 50 USD.

What I expect:-

Long term average prices of crude oil should stay between 50 to 80 USD.