Sunday, October 16, 2011

Global Markets Update - 16th October 2011

So the counter-trend rallies did show up as expected. The crucial levels were provided a couple of weeks ago and we categorically said that the major indices are set for a counter-trend rally. Now where do they move from here?

FTSE: Has support at 4900 and to the extent 4900 holds, there will be bounces towards 5200-5400 and we saw these manifest already. IMHO, the upside is capped at 5550 for now and only 2 consecutive closes above 5550 will add more steam to FTSE. Once the signs of topping out come through, the next major leg down will take FTSE to sub 49k levels

DAX: The bounce to 5600 was definitely expected but the push towards 6k levels was one of surprise.....on the weekly charts, the last time DAX fell from the 52 week high of 75k+, it had taken support at the 6k levels and thus the 6k level can provide significant resistance. Unless DAX posts a weekly close above 6k, one can now expect the next furious leg down to sub 5k levels in 6 to 8 weeks time.

CAC40/Ibex35: The banking stocks in these 2 indices are most hit and regardless of what the rating agencies say or the ECB says, the counter-trend rallies here are almost over IMHO and unless CAC40 posts a weekly close above 3350 and Ibex35 posts a weekly close 8200, the next stops for these 2 indices are 2700 and 7500 respectively

Dow: The results season are around the corner and the pathetic earnings on banking counters are already discounted by the markets [seen in the KBW Banking index]. To the extent the EPS of major banks hover around 60 cents to a dollar for this quarter, the impact on Dow will be minimal. 2 consecutive closes above 11450 was crucial for Dow and this week, Dow got 3 consecutive closes above this crucial level. There is potential to retest the 11875 level now and possibly one poke at 11950-12k levels as well before it heads down. [If one has margin to hold the position for a slightly longer period, one can now short Dow futures on NSE as close to 11875 as possible with a 3 months forward contract for a target of 10250-10400 in 6 to 8 weeks]
For those who have accounts in US, it is easier to go short on Dow now with a 3 months forward contract hedged with a December 12k Call Option

On SnP 500, 1225-1250 are now Sell Levels and one can look to buy the 1200 SnP 500 Put option of December series with targets 1050-1100 in sight

Gold has confirmed its bearish outlook and with a small poke over 1725-1750 levels in the current bounce, it is all set to go down and complete the short-term target of 1450-1550 for now. Unless, another flash of mania stems into gold, it will be difficult for it to go far above [unless there is a Black Swan event of simultaneous decay of fiat currencies in a flash] that can make gold poke over the 52 week high and go to retest the 2k levels. All other things normal, Gold is headed south for now and if the anticipated bear market takes its toll next year on western bourses, gold is all set to retest the 1k mark per ounce in USD

[Confirmation of this trend comes from a lot of bull calls on bullion whilst pygmy firms have already setup up means to start collecting gold from the retail investors in shopping malls all over the place - case in point here that is in the forefront now with highest marketing spend]

Silver being high beta has shown its tendency to fall faster than gold and from the 52 week high, twice has shown how quickly it can fall [one just needs to see the fall from 44 to 30 that took place in a jiffy] I am hearing a lot of bearish calls on Silver projecting a price of 13-15 etc but as of now I doubt whether that would happen. In the next leg of fall, I expect silver to stabilise at USD 20-25 levels and hang in there

Euro-Dollar staged its counter-trend rally and moved beyond the 1.38 mark; with some stabilization arounf the 1.38 - 1.4 mark now, the next major leg of fall should take this below the 1.3 levels and a weekly close below 1.345 will confirm the bearish outlook on Euro-Dollar

Dollar seems to be back in vogue as most debt outstanding be it sovereign or corporate, are denominated in dollars. So when margin calls are triggered on the bourses and debt repayment instalments come closer, the demand for dollar spooks up sending all currencies down. That being said, hay days for dollar has still not begun and this negative divergence on dollar is confirmed by the USD-JPY rate; sooner than later, there should be a BoJ intervention to devalue the JPY as the charts indicate the worst case scenario for USD-JPY to be around the 72 levels and then a stellar rise to 100 plus [so from a currency futures point of view, my preferred strategy still continues to be Long Dollar-Short JPY with a 3 months forward contract]

[Note the insistance of futures and not options or intra-day trade through forex sites - forex sites go on adding swap factors for carrying the positions forward and options have a limited time to exercise unless one is holding American Options that can be exercised at any point of time] For traders in India, such trades are best left alone and one should continue with Nifty and stock specific trades.

Indian bourses continued in Part 2.....

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