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
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