Jai

Prepare yourself for a ‘sterling’ decline

 Currency  Comments Off on Prepare yourself for a ‘sterling’ decline
Feb 142013
 

Cable (GBP/USD) has been moving in a triangle pattern since 2009 and yesterday’s sharp and convincing dip below 1.5630 marked the end of this triangle formation.

Pound sterling breaks out of a 4 year triangle

Cable’s monthly chart (above) with its Elliott Wave count shows that the currency is embarking on its 5th wave of decline. The target for this breakout is mammoth – Over the next 12-24 months we are very likely to see a level of 1.345 at the very least but will not be surprised if we see a level of 1.165.

When such a large text book pattern comes to fruition, clearly there will be some economic/fundamental tail wind supporting it. We are not going to bother ourselves with those and will leave it to the economists to decode that for us. However, we need to be aware  that such a large movement in a major currency is unlikely to occur in isolation. The Dollar will very likely strengthen against other major currencies. This is terrific news for Dollar Index bulls and bad news for many risk assets including precious metals and equities that rely on weak dollar forever.

Disclosure: I’m short sterling since January 2013 from 1.6113.

Oct 222012
 

Apple dropped below 623.55 on Friday and that marked a 5 wave decline on a small degree. We know that when a market declines in 5 waves it normally happens to be a  part of a bigger move.

AAPL - 60mins chart, Data and Chart Courtesy Bloomberg

With that in mind, let us look at the bigger picture – the real big picture. As shown in the monthly charts below, it is possible to count 5 waves from the 1997 low. And at the top of wave 5 a clear drop in momentum readings – a disagreement between price and momentum.

Apple Monthly Charts; Data & Charts esignal

Wave 3 on the monthly charts saw a 6 fold increase and wave 5 was little over 3 times wave 1 through 3. The real kicker though is not the price relationship but the time relationship. Wave 3 was 2months longer than 1.618 times wave 1; Wave 4 and wave 2 have a perfect 0.382 Fibonacci relationship; and wave 5 is 0.78 times wave 3!!!

Let us zoom in little more closer – the weekly charts. The 5th wave starting from the 2009 low can be interpreted in a couple of ways.

AAPL weekly charts; Data and Charts - esignal

My interpretation is that the first wave within the 5th was extended. In that case we have a perfect ending relationship – Waves 3+5 are 0.382 times extended wave 1. The momentum divergence here is more pronounced than on the monthly charts.  So there is a good chance that the top 705 was a wave 5 top.

Seeing the above evidence, I lean towards the possibility that AAPL has seen a MASSIVE TOP, a 5th of a 5th. If I’m right, we are possibly looking at AAPL declining to $80 in the next 3-4 years. Either AAPL will burn cash or competition will crush AAPL or some other form of roadblock could be the reason but we are not bothered about the reasons. Reasons will come later. Think such a decline is not possible?  Think Nortel, Juniper, Himachal Futuristic, Satyam to name a few.  Short term: Apple could bounce from sub 600 to 650-674, if it does, I think it will be a low risk selling opportunity.

The broader implication if this analysis is correct – the world is up for some nasty months.

Disclosure: I’m short Apple. I own a couple of Iphones and an Ipad and I will be Queuing up for Apple’s mini Ipad.

Can the new QE have any different impact than what QE2 had?

 Uncategorized  Comments Off on Can the new QE have any different impact than what QE2 had?
Sep 172012
 

The sentiment in the investment world is on a sugar high over QE3. Retail traders are talking about sky high targets and broking houses are dishing out lofty year end targets. Now let us stop for a moment,  jog our memory as to what effect QE2 had on equity markets around the world. Date of QE2 announcement: 3rd Nov 2010. And here is what happened in Nov 2010…

Nifty in Nov 2010

Hang Seng in Nov 2010

Singapore STI in Nov 2010

It wasn’t just Asian markets. The picture across the CIVETS markets was pretty similar.

Colombia

This is not a complete list of  equity indices that topped in Nov 2010 but I guess this is enough to drive the message.

Given that the new QE is not much different from earlier QE2 except for some small bells and whistles,  should one expect a much different outcome now and turn bullish on the markets for the long term? What was that Einstein quote about insanity?

I’ll be watching the charts for reversal signals and be ready for a big punt if one comes through.

 Posted by at 8:51 pm
Apr 092012
 

Nifty(5322): Nifty’s struggle and inability to cross 5385-5400 resistance is the first sign of trouble. If Nifty closes below 5260 that will be sign of more trouble brewing. Going forward, the most important data points for us are going to come from currency charts. If INR prints 52.2, it will be the ultimate confirmation for us that the rally from Dec 2011 is over and the path to a new low below 4530 is underway.

The Euro seems to be forming a head and shoulder consolidation pattern. A break below 1.30-1.2975 would be additional bearish clue for us.

 Posted by at 8:24 am
Mar 302012
 

Nifty(5178): Nifty on expected lines went below the low of 5165. The bullish interpretation at this point is that the move from 5630 is a corrective decline and the correction got over at 5135. What is in favour of this? The intraday momentum has not been able to clock new lows when price has done so. However, on the higher time frame , daily charts, momentum is with price.

What’s the bearish case – the market is in its third wave and the waves are sub-dividing in a 1, 2, 1, 2 fashion. INR is in favour of this scenario. Other currency cross-rates are favouring this outcome. China as pointed is bound for a big big low.

So we need to see Nifty stay below 5400 on the counter trend bounce. Quite possible it might not even cross 5320-5340. Today, being the end of a quarter – we might see some window dressing by FM’s

The chart below shows the above scenario.

Nifty intra day chart

 Posted by at 8:59 am
Mar 162012
 

Nifty(5380): Nifty caved in sharply yesterday and shed 1.53%, off the lows of the day. From now on the speed of the move is going to be important be it higher or lower. If we see gaps or wide ranged bars for more than just a day, it will signal to us that the market is moving in a impulsive fashion. As projected in our intraday wave count a couple days back, we think we may have finished the corrective phase to the decline from 5630 to 5165 and the next phase that takes Nifty below 5165 may have started. Watch 5330 today if market blows through that, we can be confident of a new swing low below 5165 (ideally 5077).

Some people are seeing a Inverse head and shoulder on Nifty. Mind you inverse head and shoulder is a bottom reversal pattern. It must occur after a prolonged decline. What we have on Nifty is some sort of prolonged advance. Hence in my opinion there isnt one on hand.

Open positions: Nifty March 5k Puts @13, RIL March 780 Put @7.5; Long USDINR @49.8 SL 48.8 tgt 51.75 (partially booked at 50.75)

 Posted by at 6:38 am
Mar 122012
 

Nifty (5333.55): Ok, let the chart speak.

Nifty- Hourly charts

Look for resistance to kick in at 5403 or 5460. A very remote chance of 5520. To get here Nifty could take today’s entire session and possibly a little of tomorrow’s session too. But once resistance is in, a fast decline should start, be it a C wave or wave 3 –  both have similar characteristics. Remember, it will not be a straight decline though as shown by the dotted line but rallies will be small.

 Posted by at 8:31 am
Mar 072012
 

Nifty(5222.40): An erratic day that finally settled lower by little over 1%.

Nifty Daily Chart

If the top at 5630 is a significant top, the counter-trend top, i.e. B wave correction to the 2010-2011 decline, there are two ways this can play out.

1) Nifty blows through 5090-5077 area – if this scenario happens, we have a powerful wave on hand and Nifty could drop straight to 4950.

2) The current decline stops at above 5077 – then there is a bounce coming through that may take Nifty to 5495 to 5510. Post that a bigger decline begins. There is some support at 5139 and 200 DMA at 5165. Hence, be willing to extinguish some short positions closer to 5100 Nifty.

Will be closely monitoring the internals of the move if the second case pans out – it needs to be in 3 steps , else the B wave stands a chance of moving higher to 5900 (see earlier post ). As the structure unwinds, Ill update in plain english.

Current positions:

Apollo Tyres  Long at 78, 3/4ths booked at 85 (I’m aware many did not get the SMS due to network Jam – this is for those who got)

Short Nifty Fut from 5450 spot, partially booked

Long Nifty March 5000 PE @32-33, partially booked @47-49

Long USDINR at 49.8 spot Tgt 52 stop 48.8

Previous position:

GMDC stopped out at 194.

 Posted by at 8:12 am
Feb 292012
 

Nifty(5375.50): Nifty saw a bounce back after 4 sessions of decline. We have a “Inside Day” pattern on the daily charts and considering the wide ranged bar on Monday this was expected.

Nifty- Daily Chart - Inside day

Nifty is correcting the decline from 5630 to 5268. This is basically phase of 2 of the move that started from 5630 and counter trending. Phase 3 will be a equal to the 4 sessions of decline from 5630 or sharper than that. The level of 5077 is a 4th wave of previous degree and we should ideally see Nifty descend there if not lower. A couple of Fibonacci clusters also come in slightly above here.

Hence we should be looking to add some short positions on Nifty in a staggered manner at or around 5450 and 5495 (may be as early as 5410). If the momentum seems strong and blows through these levels – keep your powder dry. We must see some kind of stalling around these levels. Ill anyway be monitoring the intraday action.

New Positions:

1) Long Apollo Tyres 78 Sl 72 at close Tgt 89

2) Long GMDC 207 SL 194 at close Tgt 240

 Posted by at 8:21 am
Feb 272012
 

Nifty(5429):

Nifty Weekly charts

A dark cloud cover on weekly charts on Nifty – this a reliable pattern but we need to see a follow through to this pattern. Momentum agrees with price so far. So we must look for a corrective decline to 5200 or 5077.

IF we see a bounce to 5490-5510 in the first 2days of the week, it might shorting opportunity for the extreme short term.

Supports:5390, 5210 and 5077

 Posted by at 8:47 am