US Markets

US Markets have bounced back 100% from the bottom formed in mid-march 2020. The rally was unleashed by massive QE done by FED and ECB and other central banks across the globe. 

Ironically, I wrote an article on 16^th march 2020  contemplating that if COVID in the US continues to be on the same path as Italy, the disease will spread in USA and markets will plunge along with it and S&P may fall to 1600 levels. 

COVID did spread in US and the situation there is much worse than Italy but S&P bottomed out at 2200 levels on 22nd March 2020.

I also mentioned in that post that generally I don’t rationalize the price movement and once again I learned why it’s a good idea. Lessons learned well.

One of the crucial learning I had from the GFC was that liquidity drives the asset prices. If the central banks binge on massive QE then asset prices are more than likely to recover. On 31^st October 2010, I wrote, “Never fight the mother FED” Another lesson worth remembering.

If we look at the given chart of Nasdaq 100, we can see that the index is moving within the channel and now it has reached the upper end of the channel. The resistance for Nasdaq lies at 11000 levels.  

Similarly, S&P500 is having resistance at 3250 levels. What I infer form charts is that markets have reached to significant resistance level and the likely movement from here is downwards. 

Summary

1.       US index has reached long term resistance.

2.       S&P500 faces resistance at 500 at 3250 level

3.       Nasdaq 100 faces resistance at 11000 levels

4.       The most likely move from here is down.

Crude and INR

On 19^th March 2020, I wrote, “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.”

INR has since then made a high of 77.60 and has been strengthening since then. If we look at the given chart of INR it looks like it will strengthen upto 72 levels if not more in the current move. 

On the same day, I wrote, “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.”

Crude oil subsequently made a low of 16.78 and 19.7 USD on a closing basis. Since then it has moved up by 100%. I continue with my previous call on crude, Crude will continue to trade between 20 to 50 USD for the next couple of years. It will be extremely difficult for crude to sustain above 70 USD per barrel. The longer-term outlook is bearish and crude can fall below 20 USD after 5 to 8 years.