Tech Musings - Currencies

In my previous two post on currencies written on 30th January 2015  I wrote the following, “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 at 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.”

As expected DXY topped out at 100 and move sideways. Since then DXY had consolidated between 92 – 100 levels. 

In the update given on 8^th January 2016, “I expect the down trend in these currencies will continue and they will gradually depreciate against USD. Once DXY moves above 100 levels we can see sharp depreciation of these currencies against USD.” Finally in November 2016 after a long consolidation of 23 months DXY has recently broke above 100 levels.

If we look at the given chart of DXY it seems that DXY is ready to move up to 120 levels. If DXY closes above 100 levels by the end of December the target will be 120. 

 Euro has strong support at 1 – 1.05 levels. I expect that eventually Euro will break below them and target for Euro stays at 0.80

JPY is forming a large inverse head an shoulder patter and this years strengthening of JPY from high of 130+ to low of 100 was just the completion of the right shoulder. I expect JPY to break above 130 and move towards 150 – 160 levels

Similar to JPY SEK is also forming a large inverse head and shoulder and is nearing a breakout from the pattern.  The target for SEK is at 10 and 11.25

Summary:-

1.      I am expecting in next two to three years DXY will appreciate to 120, EURO will fall to 0.80, JPY will be trading at 150 – 160 levels.

2.      Similarly other currencies like CHF, CAD, AUD will also weaken significantly v/s USD in next two years. 

Tech Musings

In my previous post on Nifty written on 6^th September 2016 I wrote, “If we look at the current chart of Nifty we can see that the upside resistance exist between 9300 – 9500 levels. I don’t expect market to break above this resistance in short term. We may consolidate between 8000 – 9500 for next year or so before we finally break out of this zone and we have a bull market which will take nifty to 14000 -15000 levels by the end of 2020.”

When I wrote that blog Nifty was trading at 8895 and it peaked at around 8968 and has been correcting since then. Today Nifty closed at 8111 levels which is around 10% correction. 

If we look at the given chart of Sensex we can see that long term trend line support for Sensex lies at 24500 levels and long term resistance for Sensex is at around 30,000 levels. 

If we look at the yearly chart for Sensex it seems that index is forming a second consecutive doji.  As per my experience of technical analysis when an index or a stock is squeezed between long term trend line support and channel resistance the most like scenario is a breakout.  Hence I think next year can be a big bull market for Indian stocks. I would give a 65% probability to this scenario. The second possible scenario is a third consecutive doji which I think has less than 25% probability. 

In my previous post on INR written on 8^th January 2016, I wrote, “I expect the down trend in INR to continue it will gradually depreciate against USD due to inherent strength of the Indian economy and excellent management by the central government.”

Since then INR has been consolidating between 66 – 68. If we look at the current chart of INR it had broken out of the triangle pattern. The first resistance is at 69 and once that is taken we can see some serious depreciation in INR v.s USD

Summary:-

1.       Sensex should find long term support at 24500 levels

2.       If Sensex closes between 25000 – 26000 levels we can see a bull market in 2017

3.       The probability of a bull market is should be around 65% to  70%

4.       I won’t be surprised if index moves to 35000 levels in next two years.

5.       Expect INR to break above 69

Nifty

Nifty has made a high of 8909 and had almost reached the target of 9000 I gave in my post on 26^th May 2016. In that post I wrote, “The bottom in Nifty was formed 6825 levels and the markets have bounced back since then as expected. If we look at the current chart of nifty we are forming an Inverse H&S pattern and it had also broken out today. There is substantial upside from here and Nifty may go to 9000.”

If we look at the current chart of Nifty we can see that the upside resistance exist between 9300 – 9500 levels. I don’t expect market to break above this resistance in short term. We may consolidate between 8000 – 9500 for next year or so before we finally break out of this zone and we have a bull market which will take nifty to 14000 -15000 levels by the end of 2020.

Crude oil

As expected in my post on 26^th May 2016 crude oil crashed by 20% within a span of two months.  If we look at the given chart of crude the support exist around 40$ levels.

Even in yearly chart crude is forming a doji pattern and this gives me enough confidence to say that crude oil will close this year between 35$ to 42$ while next year can be a bull market if things go well. 

Precious metals

Finally, after a waiting period of 2.5 years and three stop losses, gold and silver has finally broken into uptrend. In my previous post on 11th February 2016, I wrote, “(1) the up move in gold looks like a no brainer. (2)  Target for gold stays at 1900+ levels and it will surprise everyone on the way up. (3) Once gold breaks and sustains above 1250 there should be no looking back.”

Since then, gold faced stiff resistance at around 1260$ -1285$ level. Finally it took BREXIT to push gold to break the resistance and move up. If we look at the current chart of gold it had broken out of long consolidation pattern and the current breakout for gold should be very bullish. Gold may again face a resistance at around 1400 levels but I expect gold will break out of that as well.

Silver as expected has moved up much more sharply compared to Gold. In the current leg silver has moved up by more than 40%

If we look at the given chart of silver it is forming a beautiful inverse head and shoulder pattern and this breakout in silver will take silver to 25$ and higher.

Summary:-

1.       We have started a long term bull market in gold and silver.

2.       We have seen bottom prices in most of the commodities.

3.       Gold and silver will shock everyone on the way up. 

Nifty

In my previous post on Nifty written on 10^th Feb 2016, I wrote, “If we look at the long term chart of Nifty we can see that the index is having support in the range of 6800 – 7000. I think Nifty will bottom out at those levels and that should provide long term buying opportunity.”  

The bottom in Nifty was formed 6825 levels and the markets have bounced back since then as expected. If we look at the current chart of nifty we are forming an Inverse H&S pattern and it had also broken out today. There is substantial upside from here and Nifty may go to 9000.

As mentioned in my previous post I think Indian markets will breakout and provide good long term investment opportunity for next 3 – 5 years. 

Crude oil

I am following up on my previous post on Crude oil written on 8th March 2016 in which I mentioned that, “If we look at the price of crude today, I think it had bottom out and the crude is forming an inverse head and shoulder pattern and signals a reversal. If Crude breaks above 40$ we could see 50$ and beyond very soon.”

Today crude oil made high of 49.91 and my target is achieved.  I think the current rally in crude is almost over. Crude will face stiff resistance at 50 level, what happens next is not very clear now but we are sure to see some correction in crude prices going forward. 

CRB Index

Long term chart of commodity index my observation and conclusion.

1.        to unfold.

Period	Low	High	% change	Duration (years)	Reasons
1776 -1783	26.00	136.30	446%	7	American War of Independence	Boom
1783         - 1792	30.26	136.30	-78%	9		Bust
1792 -1815	30.26	103.84	243%	22	Various wars in USA	Boom
1815 -1860	32.32	103.84	-69%	45		Bust
1860 -1864	32.32	131.42	307%	5	American civil war	Boom
1864 -1912	26.71	131.42	-80%	48		Bust
1912 -1920	26.71	112.03	319%	8	First world war	Boom
1920-1939	29.30	112.03	-74%	19		Bust
1939 -1951	29.30	134.86	360%	12	Second world war	Boom
1951 -1970	97.70	134.86	-28%	20		Bust
1970 -1980	97.70	330.03	238%	10	USD DE pegged with Gold	Boom
1980 - 1999	187.16	330.03	-43%	20		Bust
2001 -2011	187.16	627.38	235%	10	Chinese Boom	Boom
2011 - to date	400.00	627.38	-36%	6		Bust

My observation

Prior to 1951

1.       most of the boom the CRB index went up to 130  -150 levels

2.       Most of the up move in commodity could be linked to wars.

3.       Most of bust in CRB index went down to 30 levels

4.       The average duration of boom 10.8 Years.

5.       The average duration of Bust is 23 Years.

6.       The fall in commodity during the bust was -75%

7.       The average up move in commodity during boom was 335%

But something has changed dramatically since 1951

1.       From 1951 US started to printing more USD then the gold reserves it  had.

2.       USD was implicitly de- pegged to Gold since 1951 and USD was explicitly de pegged with Gold since 1971

3.       For the first time in history commodities are showing an sustained up move i.e. its making higher level in every up move and down move.

4.       This is nothing but devaluation of dollar v/s commodities which is playing on for last 45/65 years.

5.       The bust in commodity after 1951 lasted for an average of 20 years

6.       The price of commodity fell by approximately 36% during the bust

7.       The current fall in commodity started in 2011 (2008) and the fall in index is equal to 36%

8.       In history only twice has commodity prices went up without any major wars or geo- political conflict.

a.       De-Pegging of USD form gold

b.      Rise of China as an economic super giant.

My Conclusion

1.       The price correction in commodity is over.

2.       The time correction in commodity may take time depending on how fast they devalue dollar by creating more currency.

3.       Looking at Quantitative easing going on around the globe I won’t be surprised if the current commodity bust gets over must before 20 years which looks like long term average.

4.       The price of commodity will go up in USD or we can say that the value of USD will fall in comparison to the Value of commodity.

5.       Looking at US it looks like a better choice in increasingly fragile world.

6.       So USD will appreciate against all other currencies.

7.       But USD will depreciate against hard assets like commodities and primarily Gold.

8.       I expect a massive rally in gold to unfold. 

Crude Oil

Crude has been decimated off late and the whole world looks worried about the price of crude oil. I missed one of the best opportunity by reversing my sell call given on (16th November 2013 & 10^th January 2014) on crude on June 2014 when crude oil almost peaked. It was a sucker rally in crude which got me in.

If we look at the price of crude today, I think it had bottom out and the crude is forming an inverse head and shoulder pattern and signals a reversal. If Crude breaks above 40$ we could see 50$ and beyond very soon.  

Precious Metals

Let me start today's post by examining the long term trend in gold. The uptrend in gold started in 2000 when gold was trading at 250$ per ounce and lasted for approximately 11 years. By 2011 when the uptrend ended gold made a high of 1913$.

Since last 5 year gold is correcting and had fallen from the high of 1913 to 1050$ an ounce. If we look at the given chart the entire down move in gold does not look like a decimation but only pull back or a price correction. Hence it is my firm belief that the bull market in gold will continue and we will see new high in gold going forward whenever the bull market resumes. 

Similarly the chart of silver also tells the same story. The bull market in silver started when silver was trading at around 5$ an ounce and lasted for approximately 11 years. The uptrend ended when silver reached 50$ an ounce.  Silver has witnessed a sharper correction compared to gold and the recent lows in silver were made at 14$ an ounce.

Both Gold and silver price structure does not look like decimation but only pull back to correct the excesses of the previous bull market. Once we see price correction and time correction being over a new bull market will emerge in both precious metals. 

In the third chart lets look at the breakout point for Gold. Gold was trading in a downward sliding channel since 2011 (this channel represents price correction in gold). Gold has already broken out of the long term down ward sliding channel at around 1130, but before we declare a final breakout for gold it has to breakout of the second downward sliding channel (which is more about looking the time correction aspect of gold). Breakout from this channel will happen at the level of 1250 and above.

Once gold sustainably breaks above 1250 we will see the resumption of long term bull market which will take gold to 1900$ and may be towards 2400$ in next 5 – 7 years. 

Now lets us examine my past calls on gold. I first went bullish on gold in my post on 14^th September 2013 almost 2.5 years back.  Since then twice I have given bullish call on gold only to see gold taking away my stop losses on 2^nd January 2014 and 13^th January 2015.

If we look at the given chart it shows that gold went down by almost 23.4% since I first became bullish on gold and this fall happened over a period of 2.5 years which means annualized fall of 11.18%.

 So what went wrong?

Both times I tried to preempt the market assuming that gold will break out of the long term downward sliding channel but that did not happen hence all three of my calls hit the stop loss. 

Although the price correction in gold was almost done by then since gold had already fallen form 1900 to 1300 the time correction was not over. Hence gold did not broke the down ward sliding channel and kept on consolidating at those levels for further two years before it finally break out now.

Summary:-

1.       The upmove in gold looks like a no brainer.

2.       Target for gold stays at 1900+  levels and it will surprise everyone on the way up

3.       Once gold breaks and sustains above 1250 there should be no looking back. 

Nifty

Let’s us start this post with reviewing the call on Nifty I gave last year 3^rd June 2015, Nifty was trading at around 8326 and my call was, “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.”

Nifty today made a low of 7186 and my targets have been achieved.

If we look at the long term chart of Nifty we can see that the index is having support in the range of 6800 – 7000. I think Nifty will bottom out at those levels and that should provide long term buying opportunity.

Summary:-

1.       Nifty downside target of 7200 achieved.

2.       Nifty will bottom out around 6800 -7000 +/- 5% range

3.       Long term investors should start buying stocks with 3 – 5 year horizon

Global Equity Index

Readers would be aware that I have been bearish on US and Gobal equity markets since January 2014. The basic premise was that S&P500 was trading in the channel and was hitting the upper end of the channel. Hence the only option for S&P500 was to correct and fall towards the lower end of the channel.

As you can see from the below chart which was uploaded on my blog on 12^th December 2014 S&P500 was trading at the upper end of the channel. 

And as you can see from the current chart S&P500 has now corrected towards the lower end of the channel. In the recent correction in January 2016, S&P500 made a low of 1812 which was dot on the lower end of the channel. Hence the first leg or correction in S&P500 is over.

Although, this correction did not pan out exactly as expected. I was expecting simple price correction but this correction was complex and contained a larger element of time correction as well. So what should we expect from here?

There are two possibilities from here.

1)      S&P500 will bounce back break the previous highs and move into a new bull market

2)      S&P500 will break the lower end of the channel and fall further 15% to make a low or around 1500 -1600

To come to a conclusion let’s see the charts of how global equity indices are placed and also see if we can get any clue from S&P500 itself.

Below are the charts of 5 Major global equity index 

As you can see most of the index are themselves into trading into a channel and have either broken down or are about to break down.

Moreover if you look at the yearly chart of S&P500 you will see that we are forming a evening star pattern on the candlestick charts.

Hence I will conclude that the global equity correction which started somewhere in 2015 will continue in 2016.

Summary:-

1)      If S&P500 will fall below 1800 the next target is in the range of 1500 -1600.

2)      Don’t buy S&P500 unless it breaks above 2050 on weekly closing basis.

3)      I see the probability of further correction in global markets to be more than 70%

Yearly Recap 2015

I have divided my yearly recap into three parts, Hits, misses and work in progress. Let’s start with the missed calls.

GOLD

What I expected:-

On 13^th January 2015, I gave a long call on gold when Gold was trading at 1238 with a stop of 1170 and target of 1350.

What happened:

Gold gave a false break out and move to 1300 levels before succumbing to the downside pressure and fell to make low of 1049 USD

What I expect:

I think Gold is poised for long term bull rally which will surprise everyone. I think the recent lows in Gold won’t be breached and trades can buy gold with a stop loss of 1000 and target of 1350, 1500, 1800 and above. 

Interest Rates

What I expected

On 11th June 2015, I wrote a post expecting interest rates to move up

What happened:

Interest rates largely remained flat and did not moved up as expected, I though interest rates did not moved contrary to my call, I will still consider this call as a miss as interest rates did not quite behave as excepted.

What I expect:

At this time it’s not very clear how will interest rates behave in future. It all depends on whether US 10 year treasury yields can move above 3.25% and 4.0% or not. Hence I am closing my call on interest rates.

Now lets look at the hits. 

Copper

What I expected

On 14th January 2015, I wrote a post expecting copper price to move down from 247 levels.  

What happened:

Copper saw almost 20% correction and moved down to make a low of 200

What I expect:

I expect the down trend in copper to continue and it will see a further leg down to 150 - 160 levels.

Yuan

What I expected

In my post written on 14th January 2015,   I wrote that Yuan will weak after strengthening against USD for 6 years.

What happened:

Yuan has closed the year around 6.50 levels and has weakened almost 5% from my call.

What I expect:

I expect the down trend in Yuan to continue and it will see a further leg down

INR

What I expected

In my post written on 14th January 2015 and update written on 16th June 2015,   I wrote that INR will depreciate against USD

What happened:

INR fell from 63.57 levels to 67 levels

What I expect

I expect the down trend in INR to continue it will gradually depreciate against USD due to inherent strength of the Indian economy and excellent management by the central government.

DXY, EURO, CAD & AUD

What I expected

In my post written on 30th January 2015 , I continued with my short call on Euro, AUD CAD

What happened:

EURO fell from 1.131 to make a low of 1.05 (6%)

CAD fell from 1.2658 to 1.40 (10%)

AUD fell from 0.7773 to 0.70 (10%)

What I expect

I expect the down trend in these currencies will continue and they will gradually depreciate against USD. Once DXY moves above 100 levels we can see sharp depreciation of these currencies against USD.

SHCOMO

What I expected

In my post written on 11th January and 15th April 2015 , I continued with my Long call on Shcomp with a target of 4900

What happened:

Shcomp moved up from 3285 to 5050 levels before equally spectacular crash after completing my target

What I expect

SHcomp looks weak and will correct going forward.

Nifty

What I expected

I gave a short call on Nifty on 30th April when Nifty was trading at 8200 levels with a target of 7500.

What happened:

Nifty fell from 8200 and made a low of 7550.

What I expect

Nifty is in a slow downside grind and is mostly doing time correction. Due to underlying strength of the Indian economy nifty is not falling freely but moving down slowly. I expect the time correction in nifty will continue before we see a new bull market in 2017. The downside target for Nifty stays at 7000 and will be a life time buying opportunity if nifty reaches those levels.

Now lets look at the calls which are still work in progress.

Global Equity markets

S&P500, UKX, TWSE, SMI, HSI, DAX, CAC

We have been continuously bearish on S&P500 from last two years.

What happenend

It cracked almost 10% in August but moved back sharply to recover all the losses.

What we expect now

We expect that there will be sharp and severe pull back across all global equity markets. I will put a separate mail on each of them.

Emerging market bonds and emerging market Currency index

In the post written on 13th January 2015 I made a bearish observation on emerging market bond ETF and emerging market currency index.

What happened

EM bond etf moved sideways while Emerging market currencies corrected only 5%

What I expect.

Emerging market bonds are making very bearish formation and Emerging market currencies have almost broken a very crucial support level. I expect sharp fall in both these index going forward.