Commodities

On 22^nd Feb 2020, I wrote, “If we look at the weekly chart of NY Crude we can see that the crude is largely trading in a range of 50 -64 and Brent are largely trading in the range of 52-66 USD. Unless crude oil break above or below this channel crude will stay in this trading range.”

Subsequently Crude Oil broke the lower support of the channel and fell to 25 USD a barrel. In the last 20 days’ crude oil saw a fall of 60%.  If we look at the given chart of crude oil we can see that long term support for crude exists at 20 USD. I think crude will find its feet at these levels.

Also, crude oil will now find it difficult to move above 50 USD a barrel and the long term range for crude oil is now between 20 to 50 USD per barrel. 

On the same day,  I wrote, “I believe that silver is on the verge of a breakout and the target for silver will be 27 USD and a further 35 USD in the next 5 years.”

I have been completely proven wrong in my call on silver. Silver made a top on that day and since then has fallen 33% to 12 USD and ounce. The fall in silver was baffling to say the least. Silver has behaved more like industrial metals instead of precious metals.  If we look at the given chart of silver it may fall to 8 USD but I will refrain from making any call on silver as of now. 

Currencies

On 4^th October 2018, I wrote, “If we look at the current chart of INR the target for the pattern comes at 76 -77 and INR should depreciate to those levels in the next 1.5 years.”

It has been almost 1.5 years and INR is trading at a low of 75.25. If we look at the given chart of INR the weakness in INR will continue. I expect INR to depreciate to 78 and beyond in the current year. 

On 18^TH November 2016, I wrote, “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.”

Dollar index did not move as expected. It made a high of 103 in January 2017 and then fell to 88 levels. Since then it has gradually been moving up and has currently crossed 100 levels. If we look at the yearly chart of DXY index it is showing a classical bull formation. The breakout I was expecting in 2017 may happen in 2020. I expect Dollar bull market to continue and my target for DXY stays at 120 levels. Expect Euro, GBP, YEN and other currencies to fall. 

Dark clouds all over, things will get worse

On 28^th February 2020, I wrote, “ If we look at the given chart of Nifty we can see that the index have support between 10K to 10700.  At this point in time, I believe that the support should work and Nifty should find its feet at these supports. In case things worsen and everything goes downhill the ultimate support for Nifty exist at 8500 levels.”

On SPX, I wrote, “If S&P closes below 3000 levels for two consecutive months (I presume this will happen) the target on the downside will be steep. S&P has support at 2700, 2400 and 2100 levels. In the worst-case circumstances, S&P may fall to 1800 levels. This should be absolute long term bottom if at all it happens.”

When I wrote this Nifty was trading at 11600 and it fell 3000 points, while S&P500 was trading at 3000 fell 515 points. Nifty found support at 8555 levels and S&P found support at 2485. When I wrote the post on 28^th February, I never thought that this will come to pass so soon.

Generally, I never rationalize the reason behind price movement because I believe that there are several factors which impact the price at any given point in time. A human mind cannot understand and judge the impact of multiple factors which may pull price in a different direction.

However, the current fall in markets are abnormal and every day we see a 5% sell-off in equity markets. I think the driving factor behind this fall is the COVID-19 pandemic which has caused the crash in market confidence. As per my understanding market, P/E reflects the investor’s confidence in the future. When the future becomes uncertain the P/E contracts and vice versa.

I believe that the current pandemic is yet to run its course. From whatever I am reading my understanding is that the west is grossly underprepared for tackling the crisis. If we look at the given chart, we can see that the US, UK and western Europe are tracking China’s trajectory. Italy with 25000 cases and 1800 death is 2 weeks ahead of US and we don’t know yet whether Italy has peaked out.

In case the US continues the same trajectory, the number of infected people and the number of deaths will be multiple of what we see today. If this happens, we will see a massive multiple (P/E) compression in all risk assets including equity markets in the US and globally.

If I am reading this situation correctly, I think we will see Nifty trading at 6000 levels and S&P500 trading at 1600 levels. I also believe that this will be a once in a decade opportunity to invest in stocks.