Elliott Wave Count on Gold - III

The Elliott wave count on Gold which I updated last time is in progression now. The prices moved up swiftly to $968 in spot markets beginning another up move in the long term structural bull market. On daily charts the count on Gold is now showing an impulsive wave developing to the upside. The 3rd wave of this impulse is in progress and has reached nearly its threshold before giving a correction.

Lets look at the graph first.



The prices may touch level of $980 in the near term with crucial support now building at top of wave 1 i.e. $935.5. A smaller degree impulse is also in progression which has a target of $985. With two important fibo projections at $980-$985 markets may take a breather there. In the best case projections scenario a short term pop to $1002 is also possible.

Though the daily charts reflect an impulsive pattern developing and momentum to last upto $1000 or so, the weekly charts are quite the opposite. The weekly graph looks as if the gold prices are in a corrective wave 'B' of a higher degree flat or expanded flat correction.

The a-b-c correction which was very evident has been followed by another patten which looks like corrective and not impulsive. This may sound contrary to what I wrote on the daily charts above. However since we are into the corrective wave 'B' the smaller degree 'c' wave would be an impulse as it is in the direction of the higher degree correction. Have a look at the graph -



If we keep this graph in mind, we should be very cautious at levels of $980 to $1002 for pull backs. Though the wave '5' of the new impulse shown in the daily charts above may stretch beyond previous highs the overall picture is still corrective and not one of a new bull market in Gold.

Though the confidence in gold bulls is at a peak and I also feel that gold is in a long term bull market, but currently its not the time to be very bullish but to be cautious. Intelligent traders are always running scared.

The USD has been hammered against the Euro yet again. Euro gave a break out of the triangle pattern formed. The prices suggest that Euro might make a new high in weeks ahead but the overall momentum picture has deteriorated significantly. There is a serious lack of momentum and this would be the last leg up in Euro after which it will enter a prolong period of weakness. Euro may top out at around 1.64 against USD.

There has been huge inflow of funds into energy and precious metals index funds. Investors and investment banks were caught napping when equity markets tumbled and very few investors and traders could gain significant returns because of being too 'late' in the commodities spike.

I feel there is not much meaningful upside potential left in these two sectors and the next big bull run is evolving in base metals market. With huge energy costs and spiralling wage inflation combined with lack of resources and shortage of investments in production facilities, industrial metals may present decent returns in next few quarters.

There is some more pain left in the US housing markets but I feel the bottom is very near. At least in terms of market expectation we may see a bottom in housing in place by the third quarter of the current CY. If US housing markets bottom out, it would mark an important bottom in zinc prices as well. So keep an eye on it.


Sahil Kapoor

Metals Market Perspective

Base metal prices have behaved in a very volatile fashion. Copper prices declined nearly $800 from record highs. On domestic MCX exchange copper prices have followed an important Elliott wave pattern which is in a nascent stage. If it doesn't break Rs. 346.20 on MCX and moves past its previous high of Rs. 387 we may well begin an upward journey towards Rs. 480/Kg copper. Have a look at the copper Elliott wave.



Copper prices from a charting point of view looks set to rise to Rs. 372 in the near term. Important resistance stands at Rs. 360 and pivot support at Rs. 346. Important medium term pivot is Rs. 330 below which the bull picture can get seriously damaged. Copper may test $10000 by the end of the year if it holds $7900 for a month or so.

Copper prices looks set to conquer new highs as supply disruptions gain strength. The only hindering factor in copper prices is the inventory picture. There is little outward movement from the LME warehouses and copper prices are highly correlated to the LME inventory data.

There is an expectation of a strike in Peru in next few days. Though the wave pattern is looking strong and is signalling an uptrend, we can know whether I am right or not. At current copper price of Rs. 353 on MCX and $8200 on LME we know if copper breaks Rs. 346.2 the count would come in low probability zone and below Rs. 330.80 it would be invalidated. So we would know the precise points for exit if this trade doesn't work out. However I feel copper prices are headed to new highs in the next few weeks.


Aluminium prices have behaved in perfect Elliott wave patterns. Prices made new highs twice this week and are looking set to rise further. My previous levels of $3250 has been met and prices are now approaching the $3450 mark. The Elliott wave count on aluminium looks like this. Below is the MCX aluminium near month continues chart.



The prices are expected to target Rs. 145 and Rs. 153 in the near term. Medium to long term targets are placed to Rs. 159 and Rs. 175 for aluminium traded on local exchanges.

There was an important development where Chinese smelters have agreed to cut nearly 10% of their output. China produced 1.16mn tonnes of aluminium in May which leads to a loss of 83,000 tonnes of aluminium a month. This would create a shortfall of 1 million tonnes per annum. Though this is not a huge figure for aluminium's mammoth market size, there is another important announcement. These Chinese smelters have indicated further cuts as loss making smelters are closing down altogether. There is large amount of rationing in Chinese energy sector which would lead to further cuts in the future.

This is just the beginning of the aluminium bull story and would eventually lead to $4000 aluminium by the end of this fiscal year.

Whatever be the reason for prices to move up, wave pattern indicate the expectation early.

Market Mayhem - Is this a bottom?

In my 26th June Market Mayhem Post I wrote

. . . . . . The market is facing three important risks -

~ Inflation, INR depreciating and leading to higher prices of imported goods

~ Higher crude prices causing worsening of the fiscal deficit

~ Uncertainty about the government at the centre If investors get answers to these questions, markets would recover swiftly . . . . . . .

Market in now trying to justify its position in light of these developments. The inflation picture has been answered somewhat by the Finance ministers when he said that it can touch 13%. I still feel inflation has the capacity to go beyond that. We must remember that its just the WPI numbers that the government looks at and talks about. It is not the inflation in the hands of consumer.

RBI's policy of raising the rates too late shows how it has fallen behind the curve and is now trying to catch up with it. Indian inflation is largely driven by a mix of domestic demand and supply dynamics and international commodity prices. The important point to note that it is not only the domestic money supply is well above 21% and way above the RBI guidance of 16.5% to 17%. With this kind of influx of money into the system and such a high level of inflation the INR will depreciate to 44.20 levels in next few weeks if RBI fails to defend it.

Crude oil has formed a ending diagonal pattern right at the top and fallen $9 from the top. This has been accepted as a welcome fall by the markets and we saw a surge of 5%. Lets see the following facts.

If RBI doesn't raise rates from here in the next few weeks we have the same interest rate differential with other currencies. So can assume there wouldn't be a material rise in inflow of funds for INR.

At current inflation level there is little incentive to hold INR. Equity markets are already dow and not in a great favour globally, though some investment demand has started to kick in.

If crude prices fall and RBI is unable to defend the rupee we might have a serious problem. The rise in the equity markets would only be sentiment and wouldn't sustain.

Moreover , India has paid an average $7.7 billion a month for oil imports so far this year, compared with $5.4 billion in 2007, government data show. That widened the trade deficit to a record $10.8 billion in May.
Combining the M3 and the record deficit along with RBI's reluctance to raise rates is what is hitting the markets badly. The M3 picture is clearly suggesting the trend of inflation figures.





What does this suggest? It suggests, any interest rate hike should be greeted with open arms. INR appreciation would be another cheer for the market. But do not read too much into fall in crude oil price, it might hit back. Crude oil prices will make a difference when they fall below $120 and INR appreciates. This expectation would start getting factored into the markets but a structural bull run will not get hampered in crude oil unless it trades below $125 for a week or so.

As I wrote last time that any shake out of the present government will be healthy for the markets, the markets didn't touch the post announcement lows. In one sense the change of supporting allies will not help much but it has assuaged some worries. If the government fails to prove its majority at the centre it could mark as an important bottom for the equity markets.

Looking at the price structure of the NIFTY 50 it seems the downtrend is still the dominant trend. There is no change in the wave count though a short term bottom may get confirmed as and when Nifty closes above 4280 levels. At this closing the short term target of 3600 may looks uncertain as this is the chief risk level which will call for a large up move to 4450 and beyond. The 5th wave of corrective 'C' seems to have ended but it would take time to see whether prices confirm this assumption. From an Elliott wave perspective there is hardly anything significant to trade. There is no profitable risk reward trade unless prices resolve meaningfully.

4093 should be a strong support and should hold for prices to move past 4280. Level of 4300 will call for some shorts with small stops for traders who like to be adventurous.

Markets move in 4 different wave in general.

a) Trending and non-volatile (equity market bull run in major indices)
b) Trending and volatile (recent 2008 crude oil spike)
c) Sideways and volatile (post corrective moves)
d) Sideways and non-volatile (low participation, generally bottom of a stock market index)

Indian stock market indices have come off from category a to b( correction) and now to C. So we might assume d to be witnessed unless we see a sharp turn to category a. There is lot of greed left in investors which might end with another strong downward push, but a possibility of sharp up move before that cannot be ruled out.

Financial advisor are witnessing good amount of inflow into mutual funds for investment as markets have touched the 400 mark. This hardly calls for a bottom. Tough crowds are always right, but they are wrong only at the point of reversal. So it is better to play the wait and watch game before plunging into the markets with all your stash.


The important point to note here is that markets may greet interest rate hikes with joy rather than gloom. Rationally any attempt to bring down the inflation problem is good for stocks. With call money markets now quoting 9% and above INR may see respite from depreciation and help stocks recover. A fall in the government at centre might be greeted positively. However any free will shown by the government in policy making would be an important development.

However markets may still recover due to these changes but the damage that has been caused due to high prices of resource commodities is deepening everyday unless these commodities cool off. We might enter a lean patch before the next big bull run commences. According to Elliott wave pattern we might have formed just the wave 'A' of the correction and might fall more in the next one year or so. But this is just another assumption and will take time to resolve.

The sectors which can give huge returns from current levels looks attractive. IT, pipes, FMCG and energy would do well. These are the sectors which to well in the end of a huge bull run and beginning of a new bull run. We might bet money on one of the two.


Due to a problem with hardware of my PC I couldn't publish graphs of the Elliott Wave counts. Graphs will be published in a week or so.

sahil kapoor
Comments are welcome.

Metals Market Perspective

The Elliott wave count on Gold that was giving a signal of downward push to the prices has been invalidated rather convincingly. The alternate count that I mentioned in my first post has picked up strength.

As of now we have exited the corrective trend channel for gold and moved out of the bearish price pattern formation. So the markets didn't spend enough time in the fourth corrective wave to mark it as an important correction. The 2nd wave of the current impulse was of nearly 19 months and the expected 4th wave zig-zag didn't last that long. Still it is premature to say that the overall structure has changed and we have entered the first upmove of the 5th impulse. It does seem that Gold became a good risk reward weighted buy after crossing $910. But the kind of exposure one can take on this volatile market needs to be debated. Gold prices would now target $960 and $980 in the next few weeks. Important price reversal point is $910.

On the Elliott wave count we have entered an impulsive lower degree 3rd wave which is projecting targets of $960 in the near term. i would update the graph on Elliott wave count on gold.

Crude oil has been rising ever since it pierced the $139 mark. Now it has already achieved the $145. Crude oil seems targeting $149 in the short term and $155 may be a medium term top. Although calling a top in the markets is fruitless exercise, still I would suggest a top of around $155 to hold in the medium term.

Copper has made a new life time high. I wrote in my previous Metals Market Perspective and the Market update posts that copper is ready to blast off the blocks. Now it seems Copper will aim for $10000 by the end of this year if it is able to clear the overhead supply till $9080. Copper has been better to trade in India as the INR depreciation has favoured the price upmove. Copper traded on the Indian commodity Exchanges has made new high in every session in the last one week. The strength seems to have furious momentum. Copper can be the next big bull in the making.

Aluminium has broken out of its $3170 resistance. The market has buying momentum. Yesterday the prices recovered $100 from days low on LME. I feel aluminium has the strength to make a new all time high in the next few weeks. The immediate target for aluminium now stands at $3250.

I would put up on article Dynamics of 'The Oil Price' in few days.

Market Mayhem - Whats Next?

Investor sentiment has hit a new low. Markets slided like a falling knife in the last 10 days. As I wrote earlier as and when markets closed below 4155 it was time to sell into any strength. Below 4155, 3800 seemed imminent.

Yesterday Nifty 50, the stock market index of NSE, touched a significant low. The markets might just have made another important low. This is the point where valuations in the stocks would look good to an investors. The broader market has fallen even harder.



The banking stocks have been beaten down to very poor valuations along with real estate sector and the metals sector. The sector which looks vulnerable now is the infrastructure sector.

However there is lot of value in the markets which is emerging now for long term investors. Traders who want to time it might wait further to see a convincingly bullish price pattern. However the up move might just be a pull back rather than an up move. With inflation touching 11.4% last week and expected to touch 14% in next three weeks there is little hope for the investors as of now. The incessant depreciation of rupee is making matter worse as it is unleashing the furry of the oil price on the country's financial health or should I say financial mess.

The equity markets the world over has entered a bearish phase. The only flash in the pan would be a significant USD recovery which would bring down the commodity prices and increase the likelihood of inflation getting milder.

The Elliott wave pattern in the markets gives us an idea that a major round of weakness in the market got over yesterday. The markets have touched the fifth and third wave equality of the wave 5 of the larger 'C' wave to the downside.



Looking at the current picture the markets tells me that a major bottom will be formed at 3600 to 3650 levels in the next week or so if we close negative today. As I wrote previously 3800 seems a strong support but yesterday's low gives an idea that we might be heading lower.

In the very short term I feel a strong bounce or counter trend rally seems important. Nifty is deeply oversold right now and calls for a meaningful bounce. The overhead resistance stands tall at 4125 levels.

Looking at the macro theme,the inflation expectation in the economy seems to be getting worse. The interest rates are looking up and there would be further rise in the cost of money to an extent of 150 basis points. There is little that can be done by the way of monetary policy in the short term. The INR move yesterday was suggestive of an expected weakening of the government at the centre and probably its fall in the next few days. July 7 would be a very crucial day for markets as this is an important cyclical time zone and an event risk lies there. If the government at the centre falls, it would not be a bearish sign. it would be a bullish one as market would take a sigh of relief from the incapacity of the present set of policy decisions.

As for traders this markets is not fit for trading on an intraday basis for this week at least. It would be wise to sell countertrend up move to 4125 or 4093. The important resistance stands at 4280. In the larger trend wave pattern it seems we may be in for a prolong period of weakness if we go above 4670 in July. As this would cause the markets to make corrective flat pattern which may take markets up to previous high and then back to sub 4000 levels before moving on to another bull trend. So it is important that Nifty remains in the downtrend till the end of this year to early next year as we may see a bull trend emerge out of it.

Important to watch any major reversal patterns on a 240 minutes graph and more importantly on a daily basis. We have entered 5 straight week of losses in nifty and last three days seeing a fall for more than 10%. Its time to be alert for a snap back for traders who are short.