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Temper greed with plenty of caution, warns Sonali Ranade
We are in a very mature bull market that has been running up from March 2008 for nearly four years. As such, one may expect a fairly deep and serious correction to set in at any time. However, market structure, wave counts and timing of certain moves enable us to spot a crack in the markets well before it happens. So this exercise is mainly to see if any such cracks that presage the onset of a correction are obvious.
On the other hand, markets usually go parabolic before a correction and a significant percentage of the gains come from such euphoric moves. So the possibility of a terminal parabolic move in the markets is difficult to ignore. With these caveats in mind, read on. Temper greed with plenty of caution!Gold [$GOLD]: As expected, gold continued to correct from its recent top of $1777.50 and closed the week at $1753.50, a touch above the indicated support at $1750.
The correction in gold looks set to continue. Its first support from current levels lies at $1740 followed by a more robust support at $1700. Gold's 50 DMA lies in the $1700 region and its 200 DMA at $1650. As indicated before, gold could continue to consolidate broadly between $1800 and $1700 levels from here to end of December before making a decisive move one way or the other.
Silver [$SILVER]: Silver too continued to correct from its recent top at $35.50 to close the week at $33.95. Silver's first support from current levels lies at $32.50.
Silver is likely to continue to consolidate above $32.50 but below $36 for a few weeks more before making a final attempt at a rally to $37.50 or higher. Silver's rally from the recent bottom of $26 is in the nature of a corrective rally whose ultimate target is probably in the $37.50 region. In terms of time, this rally could reach its target March next year.
That said, there is nothing bullish about the metal in the long term so far. You would need to rethink if it breaks well above $38. Until then I remain bearish on the metal.Crude Oil [$WTIC]: WTI crude continued to correct from its recent top of $110 and closed the week at $91.86. Its first support from current level lies at $87 followed by deeper support at $78.
Crude's price action so far is constructive and consistent with the notion of a bullish cup and handle correction to its rise from $32 to $115. On such reckoning, the correction could last till the second week of November and end in the vicinity of $80.
However, over the long term, there is nothing bearish in crude's chart despite the fact the correction turned out to be much deeper than expected. I would not be surprised if crude turns around much before $80 although it is bound towards that area on the charts.Reuters CRB Index [$CRB]: Reuters CRB Index is a goof proxy for commodities in general. The Index has been correcting from its top of 370 and is now positioned at 306.55, having made a recent low of 268, which probably was the bottom. The current correction from 320 levels will possibly test the index's 200 DMA in the 290 region.
From current level the index's first major support is at the 290 region followed by a deeper support at 268. Needless to say, a successful retest of the 290 region (ie, a rebound from there) would be very bullish for the commodity markets and signal an end to the current correction.
Dollar [$USD]: Dollar has been correcting down from its recent high of 84.25 and closed last week at 79.74 after its recent low at 78.62. The corrective bounce could test the 200 DMA currently placed at 80.50. However, the more likely course is a retest of the recent bottom at 78.65 over the next few weeks, possibly a month or two.
That said, the current correction hasn't dented the long term bullish picture. On a successful retest of 78.65 towards the end of the current year, expect the long term trend up to reassert itself.
A fall below $78 is possible but hard to see given the correction so far.
EUROUSD [$FXE]: The euro continued to correct from its recent top at 1.3160 and closed the week at 1.2950 after having made a low 1.2800. The corrective bounce is unlikely to last for long and we can expect the euro to retest, and likely breach the 1.2800