{"id":466,"date":"2010-11-29T15:09:31","date_gmt":"2010-11-29T15:09:31","guid":{"rendered":"http:\/\/www.cashthechaos.com\/blog\/?p=466"},"modified":"2011-01-20T04:46:33","modified_gmt":"2011-01-20T04:46:33","slug":"red-alert-five-charts-and-their-implications","status":"publish","type":"post","link":"https:\/\/www.cashthechaos.com\/blog\/2010\/11\/29\/red-alert-five-charts-and-their-implications\/","title":{"rendered":"Red Alert: Five Charts and their implications"},"content":{"rendered":"

A couple of \u00a0weeks back I had posted a note on my own derived indicator<\/a> and highlighted how important it was for the indicator to hold above the previous trough. On Friday, this indicator dipped below the previous trough on a closing basis and has warned that the Indian markets have probably peaked and a bearish phase is a very distinct\u00a0possibility<\/em>. So naturally one has to ask - how has this indicator fared in the past?<\/p>\n

\"\"<\/a>

Indian economy barometer<\/p><\/div>\n

This indicator has a commendable track record over the last 10-12 years:<\/p>\n

1) In 1999 - the indicator peaked in Oct 1999, and warned of a bear market a few weeks before Sensex and Nifty peaked.<\/p>\n

2) Likewise in 2003 when the Sensex\/Nifty bottomed in April, this indicator was a few months ahead signalling an impending new bull market (some might consider Oct 01 as the bottom for the Indices, even then this indicator was ahead)<\/p>\n

3) In 2006, during the infamous sharp drop in May this indicator stood its ground.<\/p>\n

4) In Oct\/Nov 2007, this indicator warned of an oncoming bear market. \u00a0The Indian markets peaked in Jan 2008.<\/p>\n

It is often a good idea to look at other inter-related markets before coming to a conclusion about a major trend-shift. And here is where the fixed income \/bonds come into the picture. Here is a chart of the 10 year OIS swaps.<\/p>\n

\"\"<\/a>

10 Year Swaps - Daily Charts<\/p><\/div>\n

As is evident from the chart, there\u00a0is still<\/em> an intense struggle to cross the 200 DMA. AND\u00a0when stock markets were trading near the all time high, the 10yr swaps were actually miles away from the peak made in February!\u00a0 If stocks\u00a0are that attractive why are investors still seeking the safety of fixed income?<\/p>\n

I have for quite some time held that the continuation of this bull market is largely dependant on the debasement of the USD. Which was exactly why\u00a0I had stressed the importance of staying\u00a0 near the door of the bullish camp<\/span> and having price objectives as opposed to a price target (see CNBC\u00a0interview<\/a>) on emerging markets, Gold, Silver and other asset classes. That brings us to the chart of the Dollar Index:<\/p>\n

\"\"<\/a>

Dollar Index - Ichimoku charts<\/p><\/div>\n

Not only has the Dollar Index reclaimed the key level of 80, it has also punched through the cloud resistance on its daily charts. If\u00a0 my reading of the wave count here is correct, what we saw between QE2 day and Nov26th was just a milder part of the Dollar Index rally. The stronger portion of the rally has just about begun! ! (Remember the tight inverse correlation between emerging markets\/commodities here<\/a> and here<\/a>?)<\/p>\n

In 2010, emerging markets have had 2 significant corrections prior to November. One in Jan-Feb and the other one in Apr-May. The gross short interest in MSCI EM was 15% lower at November peak when compared with the January peak. That is a substantial level of complacency!!<\/p>\n

\"\"<\/a>

MSCI EM Gross short interest<\/p><\/div>\n

Let us also look at Gold which can give us a fair idea of inflationary\/deflationary pressures in the global economy.<\/p>\n

\"\"<\/a>

Gold Daily Charts - A potential H&S top?<\/p><\/div>\n

The daily charts of Gold shows us that the swing to 1425 is in disagreement with the momentum readings. We can also see the potential for a Head and Shoulder top formation. \u00a0A close below the neckline, currently at 1340, is likely to augment further selling and a minimum drop to 1225 level is the expected outcome of such a breach.<\/p>\n","protected":false},"excerpt":{"rendered":"

A couple of \u00a0weeks back I had posted a note on my own derived indicator and highlighted how important it was for the indicator to hold above the previous trough. On Friday, this indicator dipped below the previous trough on a closing basis and has warned that the Indian markets have probably peaked and a […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[41,42],"tags":[32,35,10],"class_list":["post-466","post","type-post","status-publish","format-standard","hentry","category-commodities","category-indian-stocks","tag-dollar-index","tag-gold","tag-nifty-view","category-41-id","category-42-id","post-seq-1","post-parity-odd","meta-position-corners","fix"],"_links":{"self":[{"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/posts\/466","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/comments?post=466"}],"version-history":[{"count":12,"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/posts\/466\/revisions"}],"predecessor-version":[{"id":481,"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/posts\/466\/revisions\/481"}],"wp:attachment":[{"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/media?parent=466"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/categories?post=466"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cashthechaos.com\/blog\/wp-json\/wp\/v2\/tags?post=466"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}