Happy Deepavali. May the inner light glow bright and show you the way.
The regulars of this blog would recall my August post on the USDINR cross rates. Within that larger picture, the short-term is moving to the next stage.
A narrow consolidation after a powerful move and a wide range bar. The next stage of Rupee weakness is here.
Inter-market analysis provides an extra dimension to technical analysis - the peripheral vision and the backdrop in which we are operating. Here is one such inter-market factor. To me this is pretty much like looking at the charts of the Baltic Dry Index.
Over the last few weeks if you have been left wondering if the markets around the world have turned a corner, you might want to have look at the following pictures.
Please click on these pictures and have a larger view. As you might understand from the caption, these are cargo vessels that have been standing idle for months together here in Singapore and some might be more than a year. The number of vessels over the last few months have only increased albeit at an alarming pace. Talk to anyone in the shipping business they would tell you what these pictures are telling. I personally know someone who owned a ship and went bankrupt - their next generation is still trying to pay off the debts and in all likely-hood, that person is unlikely to pay off the debt until their retirement age. The same would be true of corporations. In short, this is not a cheerful sign.
Singapore backlog - a small video clipping of the ECP coast (singapore).
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Just a quick chart check.
If the sub-divisions marked are correct, we should see 4750-20 get breached soon, may be as early as this week. For medium to long-term please check the September and August post.
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.
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?"
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.
Some of you have requested my short term view on Nifty and here goes.
The upward correction that started from 4720 saw some serious selling pressure on Friday. It is possible that this correction may have ended as per the red scenario and a new low may be coming. Alternately, the upward correction may have a little more juice before another new low for the year comes through(orange scenario). So if anyone decides to go short, they need to do be ready with money management strategy around the 4900 zone of Nifty.
While we are here let us also look at the INR charts.
The pace and steepness of the USD's appreciation against the rupee has all the signs of an impulsive move. You might want to go back and refer to our Aug 26th post on the INR for the bigger picture.
As some of you would have noticed from the comments section, I consider the breakout in the dollar index a significant contributor to the global bear case.
After building a base for 3 months, the dollar index has broken out of a range. This is likely to accentuate the risk aversion across various asset classes.
Given the strength in the dollar index and weakness in rupee - I will not be surprised if a new low comes through in the month of September for equity markets.
PS: Ill be on Bloomberg-UTV today at 8:30 IST.
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.
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.)
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.
The BAC management takes a voluntary call from Mr Buffett and agrees to pay 6% on 5 billion for 10years or 300 million a year because they have LOADS and LOADS of capital to spare. YES, I BELIEVE IT, that must be the reason.