I am taking an unplanned leave. Will be back in two weeks time. Hope prices resolve meaningfully to give better trades.
Sahil Kapoor
Monday, August 25, 2008
Friday, August 22, 2008
Market Mayhem - Poor momentum
As i began my last post eying 4645 as the important resistance to get bullish, market did cross that level but only for about 5 minutes only to go down incessantly. Though there is little to doubt the ability of this counter trend rally important support was broken today. Now its time to remain cautious as oil fear has again gripped the market participant. Looking back at the crude oil price expectation and gold price outlook, both has behaved in expected fashion. I was expecting a strong upward move with a sharp fall in crude oil price. Crude oil did fall but up move in Nifty was capped by heavy selling.
On the whole the current market scenario is no giving any great trading set-up. I feel price level of 4159 is an important pivot support and market would remain above this support.
My outlook for inflation remains upwardly biased. I have been looking for inflation to touch 14% level and the time is closing in for this to happen. With food prices showing little signs of cooling and crude oil stabilizing, inflation is still very much the important parameter to watch. Equity prices remain weak internationally as Dow Jones break down from a triangle. Dow Jones would target 10,500 in next few weeks.
I think time is closing in when relation between crude oil and Nifty prices go out of order. There is a simple dynamics that oil price rise is being associated with demand growth in China and India. Now higher prices have led to poor growth in these countries. So this relation of crude oil prices and economic growth being negatively correlated is actually faulty. In reality higher oil prices lead to higher economic growth in export oriented economies like China. India is also a big beneficiary of in the infrastructure sector but the effect is some what subdued.
Studying cyclical price and economic developments in India reveals that the economic trouble would continue for some more time. In the very short term I fell September would be an important month as I expect market to gain momentum in September. There is little incentive to sell stocks at these levels and there would be healthy rallies to sell into. Patience is the key.
On the whole the current market scenario is no giving any great trading set-up. I feel price level of 4159 is an important pivot support and market would remain above this support.
My outlook for inflation remains upwardly biased. I have been looking for inflation to touch 14% level and the time is closing in for this to happen. With food prices showing little signs of cooling and crude oil stabilizing, inflation is still very much the important parameter to watch. Equity prices remain weak internationally as Dow Jones break down from a triangle. Dow Jones would target 10,500 in next few weeks.
I think time is closing in when relation between crude oil and Nifty prices go out of order. There is a simple dynamics that oil price rise is being associated with demand growth in China and India. Now higher prices have led to poor growth in these countries. So this relation of crude oil prices and economic growth being negatively correlated is actually faulty. In reality higher oil prices lead to higher economic growth in export oriented economies like China. India is also a big beneficiary of in the infrastructure sector but the effect is some what subdued.
Studying cyclical price and economic developments in India reveals that the economic trouble would continue for some more time. In the very short term I fell September would be an important month as I expect market to gain momentum in September. There is little incentive to sell stocks at these levels and there would be healthy rallies to sell into. Patience is the key.
Monday, August 18, 2008
Crude oil Conundrum - II
As we proudly celebrated our Independence day here in India, a material change took place in the world currency markets and the commodities market. Euro plunged below 1.4700 against the USD and gold price broke an important support which may not bode well for bulls in the gold market.
Interestingly crude oil didn't go down as traders would have thought. Other major traded metals like silver, platinum and else were all down between seven percent to 10 percent. I was watching a major pivot in crude oil. The price range of $109 and $111 may not get broken this month in crude oil. Though it is not wise to go against the trend and buy on any support as market remains in a down trend, still there is room for some trade setup from this price. Have a look at the price graph below -
The current trend may get exhausted at $98 or on extension to $86. Though current price moves have nothing significant but a small reversal pattern appearing on today's hourly graph. If crude oil doesn't make a low below $109, we are in for a significant rally towards $125 to $130 in the next two weeks time. I say this as the probability of the first leg of downward move i.e. A of the corrective pattern may have formed at $111.35 which could have stretched to $109. Unless we close below $109 the probability of a significant bounce is very high as risk rewards favours the bulls rather than the bears. Otherwise if WTI traded on NYMEX closes below $109 a major bearish downward move will begin making all upmoves insignificant.
Looking at the long term graph the prices at clinging to a strong pivot support. Current trading at 113.35 we look at the long term channel and support at $109-$111 range.
Looking at the demand and supply picture the demand for oil has clearly suffered as US demand is down nearly 2.5% on an annual basis for the same period previous year. The short term energy outlook from DOE reveal several statistics which point towards weakening demand. The short term energy outlook estimated a moderate to flat growth in demand and a rise in production from Non-Opec members.
Note from the SHOE - 'If new projects come online as now anticipated, total non-OPEC supply is projected to rise by about 510,000 bbl/d in the second half of 2008 and by 850,000 bbl/d in 2009 compared with year-earlier levels. This compares with a 330,000 bbl/d decline in non-OPEC supply recorded during the first half of 2008'
In the short term crude oil prices would decline to lower levels and make surprise everyone on the extent of fall as it did on the steepness of rise. We should remember that we are in a long term bull market and if price decline to $75 also, it would be a much needed correction in its relentless rise to astronomical levels. Long term (i mean 3 years or more) crude oil is going to rise even faster and the fall would be only counter trend to the long term price moves. Long term demand and supply fundamentals still favour a strong rise in oil price but price never go up in a straight line, there would be trends and counter trends and we may focus our attention on trade setups rather than on big prices swings.
From current levels, unless crude oil closes below $109 there is little incentive to sell. We still remain in a downtrend in the medium term so the upmoves will be counter trending. Price may rise to $125 below starting the next downward move. On the Elliott wave count we may have formed the A of the corrective pattern and may well be into the B wave. Current a small wave 'a' inside wave B looks highly probable to take prices to $117 if $112.85 doesn't get violated.
Gold prices have plunged as per my expectation. August 21 can be a short term reversal day from a trend count perspective. Look for a loss in momentum in gold prices.
Equity price have been a no show as they gyrate in a range in the local markets. I feel upmove have that was sold into was on weak hands and next upmove may be sharp if Nifty doesn't break 4270.
I will put up a post on stocks and on gold in the next few days.
Sahil Kapoor
Comments are welcome
Interestingly crude oil didn't go down as traders would have thought. Other major traded metals like silver, platinum and else were all down between seven percent to 10 percent. I was watching a major pivot in crude oil. The price range of $109 and $111 may not get broken this month in crude oil. Though it is not wise to go against the trend and buy on any support as market remains in a down trend, still there is room for some trade setup from this price. Have a look at the price graph below -
The current trend may get exhausted at $98 or on extension to $86. Though current price moves have nothing significant but a small reversal pattern appearing on today's hourly graph. If crude oil doesn't make a low below $109, we are in for a significant rally towards $125 to $130 in the next two weeks time. I say this as the probability of the first leg of downward move i.e. A of the corrective pattern may have formed at $111.35 which could have stretched to $109. Unless we close below $109 the probability of a significant bounce is very high as risk rewards favours the bulls rather than the bears. Otherwise if WTI traded on NYMEX closes below $109 a major bearish downward move will begin making all upmoves insignificant.
Looking at the long term graph the prices at clinging to a strong pivot support. Current trading at 113.35 we look at the long term channel and support at $109-$111 range.
Looking at the demand and supply picture the demand for oil has clearly suffered as US demand is down nearly 2.5% on an annual basis for the same period previous year. The short term energy outlook from DOE reveal several statistics which point towards weakening demand. The short term energy outlook estimated a moderate to flat growth in demand and a rise in production from Non-Opec members.
Note from the SHOE - 'If new projects come online as now anticipated, total non-OPEC supply is projected to rise by about 510,000 bbl/d in the second half of 2008 and by 850,000 bbl/d in 2009 compared with year-earlier levels. This compares with a 330,000 bbl/d decline in non-OPEC supply recorded during the first half of 2008'
In the short term crude oil prices would decline to lower levels and make surprise everyone on the extent of fall as it did on the steepness of rise. We should remember that we are in a long term bull market and if price decline to $75 also, it would be a much needed correction in its relentless rise to astronomical levels. Long term (i mean 3 years or more) crude oil is going to rise even faster and the fall would be only counter trend to the long term price moves. Long term demand and supply fundamentals still favour a strong rise in oil price but price never go up in a straight line, there would be trends and counter trends and we may focus our attention on trade setups rather than on big prices swings.
From current levels, unless crude oil closes below $109 there is little incentive to sell. We still remain in a downtrend in the medium term so the upmoves will be counter trending. Price may rise to $125 below starting the next downward move. On the Elliott wave count we may have formed the A of the corrective pattern and may well be into the B wave. Current a small wave 'a' inside wave B looks highly probable to take prices to $117 if $112.85 doesn't get violated.
Gold prices have plunged as per my expectation. August 21 can be a short term reversal day from a trend count perspective. Look for a loss in momentum in gold prices.
Equity price have been a no show as they gyrate in a range in the local markets. I feel upmove have that was sold into was on weak hands and next upmove may be sharp if Nifty doesn't break 4270.
I will put up a post on stocks and on gold in the next few days.
Sahil Kapoor
Comments are welcome
Tuesday, August 12, 2008
Elliott Wave Count on Gold - VI
In the previous update last month I wrote -
http://sahilkaps.blogspot.com/2008/07/elliott-wave-count-on-gold-v.html
. . . . . . On a longer term basis Gold looks weak and a fall below $873 will make $850 highly probable. Looking at longer term graphs, Gold prices are expected to remain weak for an extended period now. Worst case scenario can take gold prices down to $716 on a break below $845 . . . .
Gold prices have fallen as expected. Bullish market participants have been hit hard and gold decline surprised everyone. I was surprised by the intensity of the fall from $870 to $802 in the international spot markets. $850 had been a very strong strong support and all traders who trade logically or otherwise would have kept their stops at that level which got triggered. Being short in gold from very comfortable level did serve well. looking at the current price levels, $800 and $790 looks important pivot levels which would lead to further buildup of positions in the gold markets. I feel a material damage has already been done to the market as we enter the 'official bear market' in gold.
It is worth mentioning here the August plunge in gold happened in 2007 as well and was quickly bought into. Gold bugs are again expecting the same result this year and any rebound in gold will see some bugs come back into the market. This would result in sharp pull back. We must keep an eye on any reversal pattern on charts which may signal a pull back as prices remain highly oversold. The part of gold fall can be attributed to a rise in USD but it is important to note that gold peaked nearly 3 months before USD turned the tide. This means the fall is not entirely due to the USD.
Looking at the Elliott wave structure we see market nearing an important bear channel support. Take a look
It is not wise to catch a falling knife. We should not buy weakness even at this level unless we see a strong reversal pattern. But strength has to be sold into. Seasonally gold is approaching a strong season. Physical buying in India and other nations will gain strength in September. Gold ETF volumes have fallen sharply in the last one week. There has been some buying in India spot markets but it has been too low and too late. The investment demand for Gold has suffered badly due to low liquidity and its role as a safe haven has been deeply undermined. I say this because in the time of current financial market turmoil and highest inflation levels in nearly last quarter of a century gold has not done too great. Euro has now gone out of favour as investors realize that Euro Area is no better than the US. Euro has fallen gap down and I feel this gap is a material one. Though we may see a rebound in Euro and Gold material damage has been done. Gold overall looks quite oversold and selling may not yield great results from current level of $814.
Its been quite some time since I wrote the price projections of crude oil. Following the count I note that the structure looks weak and bearish. In the very short term $109 may act as a very strong support and may result in a short term counter trend rally.
In the very near term i.e. the current week we may have already seen the lows in gold and crude. Unless we take out the lows there is high probability of a counter trend rally which will be sold into. We wait for prices to resolve and give fresh trading setups.
Sahil Kapoor
Comments are welcome.
http://sahilkaps.blogspot.com/2008/07/elliott-wave-count-on-gold-v.html
. . . . . . On a longer term basis Gold looks weak and a fall below $873 will make $850 highly probable. Looking at longer term graphs, Gold prices are expected to remain weak for an extended period now. Worst case scenario can take gold prices down to $716 on a break below $845 . . . .
Gold prices have fallen as expected. Bullish market participants have been hit hard and gold decline surprised everyone. I was surprised by the intensity of the fall from $870 to $802 in the international spot markets. $850 had been a very strong strong support and all traders who trade logically or otherwise would have kept their stops at that level which got triggered. Being short in gold from very comfortable level did serve well. looking at the current price levels, $800 and $790 looks important pivot levels which would lead to further buildup of positions in the gold markets. I feel a material damage has already been done to the market as we enter the 'official bear market' in gold.
It is worth mentioning here the August plunge in gold happened in 2007 as well and was quickly bought into. Gold bugs are again expecting the same result this year and any rebound in gold will see some bugs come back into the market. This would result in sharp pull back. We must keep an eye on any reversal pattern on charts which may signal a pull back as prices remain highly oversold. The part of gold fall can be attributed to a rise in USD but it is important to note that gold peaked nearly 3 months before USD turned the tide. This means the fall is not entirely due to the USD.
Looking at the Elliott wave structure we see market nearing an important bear channel support. Take a look
It is not wise to catch a falling knife. We should not buy weakness even at this level unless we see a strong reversal pattern. But strength has to be sold into. Seasonally gold is approaching a strong season. Physical buying in India and other nations will gain strength in September. Gold ETF volumes have fallen sharply in the last one week. There has been some buying in India spot markets but it has been too low and too late. The investment demand for Gold has suffered badly due to low liquidity and its role as a safe haven has been deeply undermined. I say this because in the time of current financial market turmoil and highest inflation levels in nearly last quarter of a century gold has not done too great. Euro has now gone out of favour as investors realize that Euro Area is no better than the US. Euro has fallen gap down and I feel this gap is a material one. Though we may see a rebound in Euro and Gold material damage has been done. Gold overall looks quite oversold and selling may not yield great results from current level of $814.
Its been quite some time since I wrote the price projections of crude oil. Following the count I note that the structure looks weak and bearish. In the very short term $109 may act as a very strong support and may result in a short term counter trend rally.
In the very near term i.e. the current week we may have already seen the lows in gold and crude. Unless we take out the lows there is high probability of a counter trend rally which will be sold into. We wait for prices to resolve and give fresh trading setups.
Sahil Kapoor
Comments are welcome.
Friday, August 08, 2008
Market Mayhem - On the way up?
4645 is the next resistance to watch out for. With commodity price plunging southwards equity markets have started climbing up. As I wrote last time -
. . . . we should remember that the market is in a bear phase. These upmoves are a mere counter trend rallies which would be sold into. International macro pictures are not turning out too great to command attention . . .
I still believe we are in for a counter trend upmove. Markets from here on would go up for some more time and there is little incentive in being too panicky. S&P CNX Nifty has now formed a bullish inverted head and shoulders pattern. The target comes out to be 5160 with a risk level of around 4270.
On the whole the economic conditions are still fragile. Crude oil has fallen sharply from high and will continue to go down over the next few weeks. Inflation expectation has improved to some extent in western markets but I still feel inflationary pressure is too high for comfort in the Indian economy.
The price stability in Indian economy has been a major hurdle in economic growth. Poor price stability has lead to sharp fluctuations of 3% to 4% in long term GDP growth. Indian economy grows within a wide range and leads to volatile expectations as well. RBI would look to tighten even further. The inflation would rise to 14% as previously expected.
It would be wise to go with the trend and buy any breakout above 4680 on daily close and wait till 5000 levels. We must remember this is a counter trend rally and would be sharp and on weak hands.
Note that Gold has broken down significantly and made a low of $850.5 in international spot markets. Our target was $850, so lets wait for a bounce to sell again.
Current posts are short due to some computer issue. I will be writing full posts in few weeks.
Sahil Kapoor
. . . . we should remember that the market is in a bear phase. These upmoves are a mere counter trend rallies which would be sold into. International macro pictures are not turning out too great to command attention . . .
I still believe we are in for a counter trend upmove. Markets from here on would go up for some more time and there is little incentive in being too panicky. S&P CNX Nifty has now formed a bullish inverted head and shoulders pattern. The target comes out to be 5160 with a risk level of around 4270.
On the whole the economic conditions are still fragile. Crude oil has fallen sharply from high and will continue to go down over the next few weeks. Inflation expectation has improved to some extent in western markets but I still feel inflationary pressure is too high for comfort in the Indian economy.
The price stability in Indian economy has been a major hurdle in economic growth. Poor price stability has lead to sharp fluctuations of 3% to 4% in long term GDP growth. Indian economy grows within a wide range and leads to volatile expectations as well. RBI would look to tighten even further. The inflation would rise to 14% as previously expected.
It would be wise to go with the trend and buy any breakout above 4680 on daily close and wait till 5000 levels. We must remember this is a counter trend rally and would be sharp and on weak hands.
Note that Gold has broken down significantly and made a low of $850.5 in international spot markets. Our target was $850, so lets wait for a bounce to sell again.
Current posts are short due to some computer issue. I will be writing full posts in few weeks.
Sahil Kapoor
'Buck' the Trend
The reversal is nearing the most important pivot of 2008. Commodities has plunged down sharply. USD has turned sharply against all currencies and the trend is only getting stronger. The USD index is now inching closer to close above 74.8 mark and complete a reversal pattern filling up the exhaustion gap. Have a look at the graph-
The question is whether we are going to 77 in a hurry?
From a traders perspective it does look like a bottom in USD is in place for atleast next one year or so. The overall trend would be one of rising USD and falling energy and metal prices. 'US Federal Reserve is not going to raise rates anytime soon' this is the consensus of most of the market participants currently. However prices are telling a different story altogether. The Federal Reserve is expected to raise rates in September. This notion is actually against the market factoring in the expectation of a no change in Fed Funds rates. I feel smart money is now betting on an interest rate hike as commodities cool off. However Fed will surely have an upper hand in keeping rates at current levels as commodities cool off the the threat of inflation abates.
US data has been rather sticky in terms of inflation. The core inflation has been on the higher end and there is very little sign of slowdown in growth rate of inflation. The futures expectation of interest rates and the course of inflation is best predicted by gold prices. With gold prices cooling of it does seem that inflation is going to cool down over a period of next few months. As I wrote in my previous updates that the threat to gold prices is now very material and there is a big threat of prices declining below $800.
It is important to look what happened last year. Gold and silver formed an important bottom in the month of August to start a big upmove. Next month is an important seasonally strong month for precious metals and USD has given a strong rebound towards important levels.
EUR has suffered material damage and looks set to fall to 1.4600 against the USD in the spot markets.
JPY has broken down against the USD. JPY now targets 114 in the short term and 121 in the long term.
USD is now getting stronger and if dollar index traders above 75.6 for a week or so, we would see a dramatic sell off in commodities.
Next Market Mayhem post will be published in next two days.
Sahil Kapoor
The question is whether we are going to 77 in a hurry?
From a traders perspective it does look like a bottom in USD is in place for atleast next one year or so. The overall trend would be one of rising USD and falling energy and metal prices. 'US Federal Reserve is not going to raise rates anytime soon' this is the consensus of most of the market participants currently. However prices are telling a different story altogether. The Federal Reserve is expected to raise rates in September. This notion is actually against the market factoring in the expectation of a no change in Fed Funds rates. I feel smart money is now betting on an interest rate hike as commodities cool off. However Fed will surely have an upper hand in keeping rates at current levels as commodities cool off the the threat of inflation abates.
US data has been rather sticky in terms of inflation. The core inflation has been on the higher end and there is very little sign of slowdown in growth rate of inflation. The futures expectation of interest rates and the course of inflation is best predicted by gold prices. With gold prices cooling of it does seem that inflation is going to cool down over a period of next few months. As I wrote in my previous updates that the threat to gold prices is now very material and there is a big threat of prices declining below $800.
It is important to look what happened last year. Gold and silver formed an important bottom in the month of August to start a big upmove. Next month is an important seasonally strong month for precious metals and USD has given a strong rebound towards important levels.
EUR has suffered material damage and looks set to fall to 1.4600 against the USD in the spot markets.
JPY has broken down against the USD. JPY now targets 114 in the short term and 121 in the long term.
USD is now getting stronger and if dollar index traders above 75.6 for a week or so, we would see a dramatic sell off in commodities.
Next Market Mayhem post will be published in next two days.
Sahil Kapoor
Tuesday, August 05, 2008
Metals Market Perspective
Base metals have broken key support levels. Copper prices again failed to hold the important pivot point of Rs. 330 on MCX and $3.50 on Comex. Copper prices are expected to face huge selling pressure on any rise towards Rs. 335. Copper prices look bearish and next expected support might come at Rs. 300 on MCX.
Last time I had mentioned an Elliott wave in copper which is now clearly violated. This means we have entered a downward move in copper. On the physical demand front, the sentiment has suffered due to falling US demand and emerging weakness in the Euro Area housing markets. The demand from Asia is still strong and has supplemented any weakness in the western markets. We should be net sellers of copper on any rebound to Rs. 326 to Rs. 330 with a risk potential at Rs. 337. Prices may touch Rs. 310 and Rs. 300 level in next few weeks.
Aluminium prices have broken down. But the overall trend still remains upward. Aluminium has been hit hard by the falling crude oil. In true sense it is just the sentiment that has gone against the bulls in aluminium. The long term trend is still pointing towards out performance in the current year. Rs. 120 is an important support for aluminium in INR terms, with $2800 being the pivot support on LME.
Important to note that Gold prices are down nearly $90 from the selling levels I mentioned in my previous updates. Next support now stands at $875. FOMC would be crucial to warrant any rebound.
Last time I had mentioned an Elliott wave in copper which is now clearly violated. This means we have entered a downward move in copper. On the physical demand front, the sentiment has suffered due to falling US demand and emerging weakness in the Euro Area housing markets. The demand from Asia is still strong and has supplemented any weakness in the western markets. We should be net sellers of copper on any rebound to Rs. 326 to Rs. 330 with a risk potential at Rs. 337. Prices may touch Rs. 310 and Rs. 300 level in next few weeks.
Aluminium prices have broken down. But the overall trend still remains upward. Aluminium has been hit hard by the falling crude oil. In true sense it is just the sentiment that has gone against the bulls in aluminium. The long term trend is still pointing towards out performance in the current year. Rs. 120 is an important support for aluminium in INR terms, with $2800 being the pivot support on LME.
Important to note that Gold prices are down nearly $90 from the selling levels I mentioned in my previous updates. Next support now stands at $875. FOMC would be crucial to warrant any rebound.
Friday, August 01, 2008
Market Mayhem - Inflation blues or an impulse?
The Indian central bank, Reserve Bank of India, said fighting inflation is the most important agenda. Central Banks across the world have an important role in price stability. RBI has been behind the curve and this move is quite an important turning point in the macro economy of India. I have repeatedly mentioned inflation, INR depreciation and the health of the central government as the three important drivers which would give hope to the long term investors. In the last two weeks, we got some answers.
The government at the center survived a rather scary opposition in the confidence vote and markets took it as a positive. Though a fall in the government at the center would have been equally good if the opposition didn't think of forming a government with unprecedented parade of regional parties. On the monetary policy front the RBI raised rates showing willingness to tackle the inflation problem. INR too appreciated by nearly 100 paisa in the last three weeks. All these factors have to hold in order to give some credibility to the current upward momentum.
Dealing with inflation is now an important policy issue. RBI has been using interest rates to cut aggregate demand and this step is important to reduce excesses in real estate, infrastructure and credit growth. Tightening the money supply would lead to lower demand, lower propensity to spend and a clamp down to wage growth. However, very strict monetary policy measures is not cure for such high level of inflation. The Reserve Bank should look for reducing credit growth in housing sector as it appears to be overheated. INR appreciation should be used as an important tool to tame inflation. This would mean spending Forex Reserves to appreciate INR and reduce the burden of high energy costs and cost of some edible oils.
Though the markets have indeed given an important rebound from lows and look set to rise to some important levels. In the last update I had marked an extension of the downward trend, but it turned out not to be one. As I still continue to see my previous base count as the most probable one, the expectation that we might have seen an intermediate bottom looks strong. Does this mean the broader index should move only up from here ? The answer is NO.
Lets have a look at the long term Elliott wave structure of S&P CNX Nifty -
The primary cycle in this upmove is shown in blue with primary trend shown in purple. We may have formed an important low of the 4th wave of the primary impulsive wave. Whether this is just a three wave downward 'A' or the complete '4' is the important question. From 'Time' considerations, it looks like just the 'A' wave of the primary ABC correction. It may resolve as a flat pattern, that is nearing its previous high, or an expanded flat, making new highs and then falling.
Another very important aspect to note is, we have still not come out of the corrective channel of this ABC correction. This reduces the probability of my present assumption.
The corrective channel -
If S&P CNX Nifty is able to clear 4680 mark on a daily closing basis with higher volumes, the probability of an upmove to 5000 would be on the cards. The current rally may face strong resistance at 5000 and 5300 levels.
Still we should remember that the market is in a bear phase. These upmoves are a mere counter trend rallies which would be sold into. International macro pictures are not turning out too great to command attention. The US economy is witnessing poor growth, high inflation and high unemployment as well.
Misery Index (10.52) = Unemployment rate (5.5) + Inflation rate (5.02) as of June 2008
The above index shows the problems that the US Fed faces as it tries to clamp down money supply. With very low rates and a poor housing market fraught with high default risk and a more than a hundred percent rise in foreclosures the choices are very few. The current prudent choice is an appreciation of the USD and a clamp down on growth along with a raise in short term rates.
The Housing and Economic Recovery Act of 2008 in the US which has been signed into a law would provide some short term relief to the troubled banking market in the US. The point is US economy is in doldrums and recovery would take time. But the cost of recovery is still uncertain and markets would remain jittery.
The Euro Area is no exception. Retail sales in Euro Area are now decelerating and the housing market is on a brink of a steep fall. A fall in Eur against USD would be a devastating blow to the hawkish stance of the ECB rendering it helpless against inflation. The Federal Reserve has already begun its march towards a strong dollar and this would spell havoc for the growth in Western First world.
So growth prospectus in the world market are not promising which would keep any strong impulse capped. Indian market are expected to do well in falling crude oil and rising INR scenario than other markets.
Another important development is the latest acts of terror on the Indian soil. Though cowardly, these incidents can infuse fear in the minds of general public and result in lower demand at retail establishments. The outcome of a fall in demand and retail level for services such as basic goods, entertainment and hospitality. These are the sectors not to be in at this time. With higher interest rates and a tighter money supply, the current situation doesn't look convincing of a strong growth period.
Utilities are smartly up from lows and looks convincing from a long term prospective. Tata Power looks an important pick.
From a technical analysis point of view, Nifty may rise strongly on a rise above 4680. Support is now building up at 4155, the important pivot of this whole move.
The government at the center survived a rather scary opposition in the confidence vote and markets took it as a positive. Though a fall in the government at the center would have been equally good if the opposition didn't think of forming a government with unprecedented parade of regional parties. On the monetary policy front the RBI raised rates showing willingness to tackle the inflation problem. INR too appreciated by nearly 100 paisa in the last three weeks. All these factors have to hold in order to give some credibility to the current upward momentum.
Dealing with inflation is now an important policy issue. RBI has been using interest rates to cut aggregate demand and this step is important to reduce excesses in real estate, infrastructure and credit growth. Tightening the money supply would lead to lower demand, lower propensity to spend and a clamp down to wage growth. However, very strict monetary policy measures is not cure for such high level of inflation. The Reserve Bank should look for reducing credit growth in housing sector as it appears to be overheated. INR appreciation should be used as an important tool to tame inflation. This would mean spending Forex Reserves to appreciate INR and reduce the burden of high energy costs and cost of some edible oils.
Though the markets have indeed given an important rebound from lows and look set to rise to some important levels. In the last update I had marked an extension of the downward trend, but it turned out not to be one. As I still continue to see my previous base count as the most probable one, the expectation that we might have seen an intermediate bottom looks strong. Does this mean the broader index should move only up from here ? The answer is NO.
Lets have a look at the long term Elliott wave structure of S&P CNX Nifty -
The primary cycle in this upmove is shown in blue with primary trend shown in purple. We may have formed an important low of the 4th wave of the primary impulsive wave. Whether this is just a three wave downward 'A' or the complete '4' is the important question. From 'Time' considerations, it looks like just the 'A' wave of the primary ABC correction. It may resolve as a flat pattern, that is nearing its previous high, or an expanded flat, making new highs and then falling.
Another very important aspect to note is, we have still not come out of the corrective channel of this ABC correction. This reduces the probability of my present assumption.
The corrective channel -
If S&P CNX Nifty is able to clear 4680 mark on a daily closing basis with higher volumes, the probability of an upmove to 5000 would be on the cards. The current rally may face strong resistance at 5000 and 5300 levels.
Still we should remember that the market is in a bear phase. These upmoves are a mere counter trend rallies which would be sold into. International macro pictures are not turning out too great to command attention. The US economy is witnessing poor growth, high inflation and high unemployment as well.
Misery Index (10.52) = Unemployment rate (5.5) + Inflation rate (5.02) as of June 2008
The above index shows the problems that the US Fed faces as it tries to clamp down money supply. With very low rates and a poor housing market fraught with high default risk and a more than a hundred percent rise in foreclosures the choices are very few. The current prudent choice is an appreciation of the USD and a clamp down on growth along with a raise in short term rates.
The Housing and Economic Recovery Act of 2008 in the US which has been signed into a law would provide some short term relief to the troubled banking market in the US. The point is US economy is in doldrums and recovery would take time. But the cost of recovery is still uncertain and markets would remain jittery.
The Euro Area is no exception. Retail sales in Euro Area are now decelerating and the housing market is on a brink of a steep fall. A fall in Eur against USD would be a devastating blow to the hawkish stance of the ECB rendering it helpless against inflation. The Federal Reserve has already begun its march towards a strong dollar and this would spell havoc for the growth in Western First world.
So growth prospectus in the world market are not promising which would keep any strong impulse capped. Indian market are expected to do well in falling crude oil and rising INR scenario than other markets.
Another important development is the latest acts of terror on the Indian soil. Though cowardly, these incidents can infuse fear in the minds of general public and result in lower demand at retail establishments. The outcome of a fall in demand and retail level for services such as basic goods, entertainment and hospitality. These are the sectors not to be in at this time. With higher interest rates and a tighter money supply, the current situation doesn't look convincing of a strong growth period.
Utilities are smartly up from lows and looks convincing from a long term prospective. Tata Power looks an important pick.
From a technical analysis point of view, Nifty may rise strongly on a rise above 4680. Support is now building up at 4155, the important pivot of this whole move.
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