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.

Gold, the Buffett slayer

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Feb 172012

A recent business insider article calls 'Gold bugs' thin skinned misanthropes because Warren Buffett "..devotes a few paragraphs to gold and the fools who worship it" in his upcoming annual letter!!   Regular followers of this blog know that I had turned cautious on Gold around $1700's and bearish in September 2011 - just establishing I'm no gold bug.

In my May 2010 post, I had highlighted how such fancy theories can be quite flawed and prevent you from arriving at the best investment decisions. Now to Mr Buffett's renewed Vitiriol against gold:

1) The cube of gold will produce nothing in the next hundred years

My answer: No one makes investment decision for next hundred years

2) The cube of gold will not pay you interest or dividends, and it won't grow earnings.

My answer: So will be the case with a boat load of stocks. The S&P has gone no where in the last 13 years.

3) You can fondle the cube of gold, but it won't respond.

My answer: Yes, witty.   Hence I'll try to be funny too.   Mr Buffett should know what to fondle.   If you own lots of gold you do not need to fondle, 'they' will fondle you 😀

The reason for Mr Buffett's bashing?   Well, whatever I say would purely be a guess but I would let the performance of Gold speak for itself:

Gold's return for the last 10yrs - 488.19%

BRK's return for the last 10 yrs - 67.77%

Gold continues to wallop the performance of  Berkshire Hathway by a GIGANTIC 420% over his preferred time frame of 10 years.

And if you had listened to Mr Buffett's  Annual letter of last year, you are in the elite company of those who missed the best performing asset class of 2011 - long dated bonds that returned almost 30%.

Here are the words of another  billionaire who is in the same business. "At the end of the day, your job is to buy what goes up and to sell what goes down. So really who gives a damn about PE's?" – Paul Tudor Jones

Baltic Dry Index breaks 2008 low

 Commodities, World Markets  Comments Off on Baltic Dry Index breaks 2008 low
Feb 022012

The Baltic Dry Index has been dropping continuously for the last 31 sessions. The index just broke through the 2008 low and this is worst reading on this index for the last two and a half decades.

Baltic Dry Index

If you are wondering why should this be of any significance - the index is a very important measure of the health of global economy. You could either believe the commentators who are saying that we are seeing rally in equity markets because Europe is "close to being solved" (when Maths 101 tells us its impossible) or pay attention to the warning signal from this index and stay cautious and try to be safe.

Sep 162011

Silver saw a steep drop from $50 to $32 in the month of May and the rise post that has been in a corrective fashion.

Silver - rising wedge

The above chart of silver shows a rising wedge pattern with a typical throw-over to the upside. Yesterday's close was well below the bottom of the rising wedge and this should usher in a sharp down move for the industrial metal probably before the end of this month. Looking at the chart from an Elliott wave perspective, silver is probably in its powerful 3rd wave or C wave which has the characteristics of wave 3. At $26.7 the first leg of the decline from 50 would be equal to the move from 44.27 (and hence A=C), the August peak, which seems like the minimum drop that is likely for silver. Also the $26 zone is the previous 4th for Silver.

Naturally, some of us would be thinking, "what happens to gold now?"

Gold Daily Chart - Potential for a double top

Here too, it is obvious that Gold is running into troubled waters. A fake print above 1913 high, momentum disagreeing with the new high in price are all tell-tale signs of exhaustion. A close below 1763 or an intraday drop below 1705 would complete a double top for gold and should draw prices at the very least to 1480.

Given the fact that the Dollar Index too had a breakout to the upside just a few days ago,  you might want to pay considerable attention to these signals in the precious metals space.

Aug 262011

The Indian currency realised its triple bottom potential at the 43.85 level as the currency moved past 46 against the USD yesterday. The chart below shows the one year daily price movements of the currency and the bottoms are marked by the red oval. The price objective of the triple bottom pattern works out to a little over 48. Given that the stock markets are oversold and a bounce may come through for Indian stocks, INR could see a short-term pull back.

Indian Rupee - Triple bottom

If the currency pair ends today above 46.1 today (a weekly closing), it would be closing above its weekly "cloud" for the first time since August 2009. This would be another bearish sign for the Rupee (I recall turning bullish on the Rupee in April 2009.)

Indian Rupee - Weekly Ichimoku charts

In 2008, when INR closed above the "cloud", the Rupee weakness lasted several months until it peaked at the level of 52.18.

If we look at the movements of the INR from an Elliott wave perspective - it does look like USD/INR is in it's early stages of its powerful wave 3. The triple bottom low of 43.85 is just a shade over the 62% fibonacci retracement level of the move from the 2008 lows to the March 2009 high. This is a very common wave relationship.

Now comes the staggering bit - if my wave labelling is correct, the potential for the Rupee over the next several months, works out to at least a little over 57 and a typical wave 3 relationship would take the rupee to a level of 65!!!!

So there it is, another asset class that is closely related to the Indian stock market's price movements, reiterating the bearish case for India.

Aug 102011

The up move in Gold is starting to look similar to what silver was in April. Yesterday's intraday high of 1782 and a much lower close is the first warning sign. This does not necessarily mean that Gold will start crumbling right away. In fact an erratic rise, like the two scenarios shown on the chart below would give traders an ideal shorting opportunity and would be a classic parabolic end.

Gold - Daily Charts

In Technical terms: This is an extended wave 5. Almost always when the extended moves ends, it will be followed by a VERY HARD drop.

The sentiment picture: Talk to anyone around you, they will tell you must be insane not to own gold. I've been seeing facebook status from wannabe analysts and public stating heads or tails Gold wins. That is your sentiment picture screaming that the boat is about to capsize.

So, it is absolutely essential to understand that this not the time to create new long positions in Gold. If you are already long, be ready to fold.

May 062011

Just one day  prior to the anniversary of Dow's 1000 point crash, the Ghosts of the 'flash crash' came back to haunt risk assets with greater ferocity. Crude got walloped by 10%, Gold got slammed by over $50 and Silver was decimated by another 12% on top of its recent sharp drop!!

The force behind this move is the Dollar Index, which until now had refused to head higher despite being heavily oversold on multiple counts.

Dollar Index - Daily Chart

If you look the charts of UUP, the bullish dollar index fund, the 1.5% rise for this currency basket has come with a massive buildup in volumes. Also a gap up in UUP after a congestion holds the probability that the gains could stick and could even be a reversal.  A follow through in Friday' session for the USD would bode well for those rare Dollar Bulls. One thing that is quite clear, if this is not the reversal for the green-back, whenever it occurs, what we saw in yesterday's session is a mere curtain-raiser of things to come for risk assets.

Looking at the charts of Gold and Crude, there is more evidence that this is probably a turn of high significance for the intermediate to long term.

Gold: The weekly charts of Gold will end up being a bearish outside week (unless it recovers $40 in today's session) and this high probability reversal has occured at a very important time ratio as shown in the chart.

Gold - Bearish reversal

Crude: A bearish outside week in crude and  Price/Time have squared at the high.

Crude - weekly charts

Apr 272011

Silver's sharp decline after hitting a multi-decade high warrants close attention.

Silver- Daily Charts

The daily chart of silver above marks the "long-legged doji" which is a key warning of sign of an impending reversal. Moreover this pattern (a) has occurred after a prolonged and parabolic rise in silver (b) has seen follow through selling on very heavy volumes and (c) has faced resistance at the 1980 highs. These are mouth-watering signs for much lower prices for silver.

However I will probe this set up with a very small short trade - the Dollar Index has shown no signs of reversal and is merely consolidating near the lows. Unless the green-back turns up this might turn out to be just a fleeting drop in an up-trend.