US Indices : Getting @ Interesting Points

Almost all US Indices are Getting @ Interesting Points.

So the key Q:

Is today the day of hitting a short term bottom.. and thus a point from were a decent bounce could start ? OR
Is today the day of breach of long term support trends, and so a start of another major down side movement all across ?
A friend mentions: i think there is still too much money with folks (even though with lesser purchasing power), and I see all sectors getting sold off today .. so where is it going ? I think it has to come back into the market, but I really doubt as a long term investment. So maybe we will see short rallies
which is what we have seen in this year.

Despite being hopeful of bounce or not.

Nevertheless, Interesting times to come, ahead.  Hold your breath for the Joyride and enjoy the game.

Oil, US and Indian Markets

State of OIL hysteria:

Some of it can be estimated using technicals around primary indicators like: Crude Oil, Oil futures, stock prices of Oil drillers and refiners.

Last week’s short covering around OIL futures and Index funds.. and recent correlated down action on most energy stocks hints on deleveraging continuing around OIL/energy.

Crude action in next few weeks should confirm what is going to happen
a correction or another spike before true correction happens
as Crude is still sitting up without major correction. Crude price is is the primary indicator and it is contiually staying up, which is a little bothersome.

State of indian markets
Taking a major hit - Some say because of oil, CRR, etc. Oh Well !!! OIL, CRR may be the catalyst. I think this was all expected and it unfolded.

Considering the bearish action that started early this year.. on 20K to 15K correction and then an expected bounce from 15K~17K (all published earlier on my blog) and then further down-spiral once it hit 17K at 50DaySMA as resistance line.

I expect some bounce to 15.5~16K region [some kind of succor rally ], before it corrects to 12K~13K region over next 1~2 yrs. In my mind, the economics of Indian Cos. needs to improve by-and-large, to sustain next round of big move on Indian Stock Market.

What puzzles me is Indian Exchange Rate !! Despite demand on $ for buying Oil.. the exchange rate should have been 39~40 by now. RBI intervention is too high to keep it that low. And that it still floats in 42+ region. But 9+% inflation is going to push them to change their monetary policy to make INR a stronger currency to reduce of cost Oil imports and commodity prices. More sooner than later. The govt. is stuck between need for election-economic gimmicks on one side and need for truthful economic policy and reform needed on another side.

US markets:

Under continuous correction for last 2~3 weeks.
I expect US indices to touch and test these levels:

Dow: 11900 support
NASDAQ : 2300 support,
S&P: 1300 support.

Amidst all this doom-and-gloom news on the blogs and media, I think all this is getting baked into current market levels. Depending upon how “recession fears” confirm themselves and “quality of earnings” in upcoming weeks, Stocks could rally/bounce off these support levels, or simply loose/crash base from here. Interesting times to play game-by-the-time-tested-rules or be on the side-lines BUT not to speculate. Technically, looks like Large-Cap-Value Stocks would likely be safer bets, Mid and Smalls caps to correct more before LongTerm Entry levels can be seen. I expect an interesting bounce to trade some profits after this correction. But a turbulent Year ahead IMHO.

Enjoy the Game.

Gold … Ongoing Correction and Beyond

As I mentioned, that Gold would correct to 840~860 range.. and it exactly did during recent months.

Now that the correction is under-way.. what seems next when we look at Gold’s (Weekly and Daily) Chart and it’s trend lines. I think the correction price point has been touched, but the sentiment indicators still indicate further weakness. And with the de-leveraging that’s being expected and seems to be happening in most commodities (Oil, Gold, Basic commodities, etc.), Gold could touch 80~820 region.

But I don’t expect sharp correction in Gold under 850 mark. Gold, as in the past, should form some base in this region till long term moving averages base out and new support gets formed, before gradually moving up.

Now some may bring in elements of rising USD and reversal in Euro strenghtneing from here on. I beleive at somepoint USD will stop correcting further and strengthen on. But considering the current state of US economy that seems far from remote, to start anytime now. Euro (due to rishing govt. debt on various weak and some strong economies) should unwind to $ parity over next few years. But USD is not yet ready to start the reverse strengthening move. So I expect USD Index to correct to ~60 from current ~73 region. And during such time ot turbulence in currencies, no matter which one’s become strong and which one’s become weak, Gold is very likely to stay a safe currency and inflation hedge, globally.

Here, I must state that:

Gold, unlike Oil and other daily use commodities, doesn’t serve any other useful purpose, so it’s ‘useful demand’ stays limited to jewellery. By-and-large, it’s an anti-currency and anti-inflation bet.. So as long as these forces stay alive, gold should do well. Once global stabilization of stronger currency framework happens, all speculative demand from Gold should move out. Luckilu, all speculative price action (futures and speculative based) for precious metals, moved away into Oil and some other commodities.. And this bubble rotation from gold into Oil, etc. caused Gold correction and Oil speculation. Good for Gold in long run.

In nut-shell, Advise stays un-changed, i.e. :

“Those considering buying gold, might want to wait for such corrections to 860 region, and then start to “gradually” accumulate. Those who have better clarity and right patience, may want to look for clear technical signals of bottoming signs and buy gradually towards next uptick.”

Enjoy the Game.

PS:

Some very useful links to read:

http://www.frontlinethoughts.com/article.asp?id=mwo052308
http://www.gloomboomdoom.com/subscribers/download/080601.pdf
http://www.frontlinethoughts.com/article.asp?id=mwo053008

Gold .. what next

Looking at Gold (Weekly and Daily) Chart. It’s trend lines.
It’s EMA (50-day, 200 and 350 day), Long term Stoch and RSI patterns.
It recent breaking down off short term support lines and long term support lines and EMA support levels.

I think there is a decent chance that over next 2~3 months gold should touch 830~860 mark, form base in that region, new support before climbing up again by this yearend, to reach new peaks.

So those considering buying gold, might want to wait for such corrections to 870 region, and start to gradually accumulate. Those who have better clarity and right patience, may want to look for clear signals of bottoming signs and buy gradually towards next uptick.

Enjoy the Game.

US Markets : Critical Juncture

US Markets : Critical Juncture

I am looking at the charts of US markets (NASDAQ, SP500, DJIA, etc.), their technical indicators and volatility indices (VIX, VXN). It looks like that the US markets (after recent up-side bounce) are reaching an interesting point of resistance lines, from where is they are more likely to move down, to either test last lows or make new lows.

So, If this week’s action starts down, for those considering buying short positions (through ultra-short vehicles like QID, SDS, DXD,… or other vehicles) might want to consider coming days, as the right time to do so.

Now this is assuming, that the recent bounce is over. BUT it’s also possible that markets budge this resistance point and continue to move up. So if markets bounce big from here (i.e. crossing the resistance lines on upside on a good volume), then it’s better hold on to your plans to initiate short positions. And wait untill another buying saturation becomes visible on the US indices charts. We will keep a watch and update you all.

For now, play this with confirmation of upside/downside volume, as direction becomes clear.

Enjoy the game.

Indian Stock Markets.. Technical Outlook

Looking at the above chart (Weekly and Daily) of Indian Stock market.. Some questions start to emerge.

Where are the Indian markets headed from here. (After 25% correction from peak in Dec-07) ?
considering the following factors
1. With outlook for FDI and FII investment into India, starting to slow down in recent past, but is slowly re-establish itself in coming years/months.
2. With speculative bets off from the market scene during recent correction. And more Long Term investment players staying in.
3. With high-inflation and thus liquidity crunch likely to be introduced into the Indian financial markets (through : CRR, interest rate increases, etc.), could market rise further.
4. With Western economies undergoing ‘recession effect’ and thus stock markets expected to correct sometime over the upcoming Summer/Fall months, would CH-INDIA and SouthEastAsia (SEA) undergo similar downside.

Do these charts offer some answers On future trends ?
Probably not. As such charts don’t reflect how future fundamentals will drive such action.. unless institutional accumulation/distribution signals are available.. future direction is tough to gauge.
However, charts do offer some guidance on current sentiment and thus PROBABILITY of likely future action.

Currently, these charts show that:
1. The BSE has crossed LongTerm Support lines. @ 17K.. These long term support lines might become resistance lines going fwd.. unless that’s broken on the top side on high accumulation volume.
2. Sentiment indicators show bottoming up of bearish sentiment.. or the market is close to formation of short term bottom.
3. Markets need to form acute bottom levels with some 2nd round of capitulation (which might happen this week or anytime in coming months), should show negative MACD divergence on bottom side for confirmed upside action to sustain.
4. So once these technical factors clearly show ‘bearshih exhaustion’ over next few months, there could be a short term bounce from 14.5K~15 K levels.
5. Long term action would be based on key fundamental drivers - like Corporate earnings, earnings growth, inflation, interest rates/liquidity, International interest (esp. FII), election year effects, etc. Since confluence of these factors put together is not expected to change in big way.. major upside change in earnings growth is not expected. Most of the current growth is captured in the market.
6. However, over next few years.. as corporate fundamentals move ahead of the stock, markets might catchup again.. so in 2010~2011, BSE might touch new highs.

So some uncertainty, but NOT A BAD TIME TO START CONSIDERING BUILDING LONG TERM PORTFOLIOs, once next round of capitulation of negative action is seen. No clear guidance for now.

Enjoy the Game

BSE.. Contrarian Thoughts..

Let’s take a look at the expected recent correction in BSE - Indian Stock Market Index. The correction was continuous and (as I published a few months) that I expect a decent correction to long term support levels in 15K range.. And similar happened.

So what’s next ? The news in the Indian media has turned negative.. and the sentiment is a bit bearish.

And looking the charts and as contrarian, I expect a decent bounce to 17+K range. esp. when media has turned a little bearish.

Note that media and sentiment is bearish and NOT YET bearishful. TIll that happens, long term buying opportunities don’t arrive.

But short term bounce based on short term correction is quite likely. Play with caution, as this bounce could last a few weeks upto BSE touching 16.8K~17K levels, so might offer a good short term trade.

Also on the same token, regarding US Markets. the sellf-off over last few days seems to be making the Indices reach long term support line levels.. With Dow retesting 11600 and NASDAQ testing 2200 level.. there could be a decent bounce from these levels.. The liquidity crisis is causing markets to reach oversold levelsvery fast.. any relief from liquidity could cause a decent bounce.

At this point, I must admit that my last prediction of Dow bouncing to 13100, etc. didn’t come as true.. But I must also re-state that a 12% bounce from pre-specified levels did happen and it did reach sentiment saturation levels that I was expecting at Dow touching at 13100 mark. So my “criteria” of that bounce limits worked quite as expected (:)), although the overbought situation reversed a little earlier.

Enjoy the Game.

While US Indices are in Uptick ..What’s Next

The recent short term selloff in Jan ‘08 resulted in kind of a capitulation around 23rd Jan.. and the uptick happened right when I predicted could be good support levels. The markets have already bounced 5~6% since this short term bottom.

On the upside sometime in Feb-Mar, the following US indices are likely yo topout before further continuting their reversal to imminent fundamentals of the economy. These points would offer good Exit stock positions:

SP500 : 1420~1430
DJIA: 13100~13200
NASDAQ: 2500~2550
NYSE: 9400~9600

These levels are basically resistance points determined based on : short resistance lines on the top side and long term support lines that were broken in Jan and would now offer as resistance points till markets recover back.
This also means another possible 4~6% further upside rise is possible from here. That’s it.
So I advise readers to keep a watch for these points and to exit any speculative positions and hedge Long Term positions at these points. Being careful and not getting greedy will be key at these points.

========== My Stock Diary notes in mid Jan while market was correcting ==========

Jan-18-2008
Since this next few months/year it is a down trending market (with in between upticks). Personally, I think, in the short run.. I expect Indices to touch these levels on the bottom side:

DJIA : 11800~12000
NASDAQ: 2250~2300
S&P500: ~1350
NYSE: 9200

At these levels, I shall again consider looking at technical indicators on the indices, before thinking that short term oversold levels for another re-entry have arrived or not. Till then markets are a risky bet.

This year will be marked in history as a year of capital preservation (to keep value of capital safe) so play it accordingly.

=========

Human Reaction to Market Cycles

Folks,

Here is an interesting slide that captures how typical Investors React to Market Cycles.

Also explains why playing contrarian and buying value plays to Long Term advantage.

Enjoy.

Reversal in Stock Markets.. Eventually Imminent ?

The US markets lately have been butchered by a much needed correction. All major US stock indices and many high-beta tickers had run-up, very much and so this correction to sanity was needed. Now is this a cyclic correction or a much large sell-offs for an impending recession, needs to be seen. The news from various fronts (RealEstate Builders, CDO and subprime affect, Banking, retail, consumer sentiment, John Chambers, Tech, Energy Prices) has not been very encouraging. And so the corresponding market reaction.

On the other hand, the Indian Stock market is stuck (in +19K range).. resilient and resistant, from factors like - strong local sentiment, growth projections; and money inflow (from FIIs and NRIs) impacted by currency turbulence on US-Dollar and currencies around the world.

But after all this large run-up and run-down, what do we expect next ?

Over next few weeks/months, I expect a reversal. Here is what charts have to say.

The US indices are showing signs of too much negativity. The RSI, Stochastics, MACD and ADX/DMI lines clearly indicate to reach a window when reversals typically happen Another factor that could play in to a bounce or a quick rally before yearend. That is, for fund managers to show good returns for the year 2007, the markup rally and then some profit taking is expected before the year ends. Else fund managers wouldn’t be able to get good alpha this year.
Only one factor can take markets t further trenches is that this recent sell-off turning out to be a ‘recession effect’ and not just a cyclic correction. Some indices have already reached short term (1~2 yrs) support levels, but further need to correct to reach long-term support and to negativity levels seen over last 5~6 yrs.. So a bounce from current or coming week levels is mor likely, before recession effect takes it full toll on the markets.

On Indian Bourses, clear divergence is seen on BSE chart, lower {RSI, Stochastic , DMI } seen on every attempt to make new high in 19K+ range, the markets are wishy-washy in 18.5~19.5k range and weaker on every runup. This is an indicator to stay away (not yet short) unless a new uptrend is clear. A reversal to 15K levels is more likely than runup, but I would let the markets show the right direction before urging anyone to keep any money into the volatile Indian market.

There is an interesting article on what’s more likely in Asian markets over next few months @:

http://www.gloomboomdoom.com/subscribers/download/071001.pdf

Enjoy the game.