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%