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.