How erratic monsoon spells trouble for Indian markets

After making a low of 81.2250 on June 6, the index pulled back to a lower top of 82.67 before closing the week at 82.4880.

Barring an attempt to challenge the lower of 82.67 early next week, the downtrend in the Dollar is likely to continue. 

Its first target on the downside is 81.2250 followed by a more substantial floor at 80.25.

As mentioned last week, while the $ remains in a long-term uptrend until the trend line drown by joining the lows of 73.6800 and 78.6650 is violated, one of the aims of the current correction is to retest and revalidate this trend line.

The decline could continue until end August.

The dollars' reaction to the 80-price region, therefore, will be very interesting. 

The wave count favours a decline in the value of DXY in the coming week.

. . .

Gold

As noted in my last blog post, gold price crashed in a swift move from a high of $1633 to a low of $1563 before closing the week at $1571.54.

Gold continues to be in a downtrend.

The first target remains at $1520 followed by another floor at $1470.

We are very late into a correction in gold that began in September last year from a price level of $1920.

It is hazardous to call a bottom in a commodity that has had a bull run spanning two decades.

Considering the time cycles in Gold, it is premature to say if gold is anywhere near a bottom.

On the other hand, corrections are never one-way.

This blog had called for covering shorts at $1550.

Those who followed that advise would have avoided the recent whiplash.

In my opinion Gold is unlikely to significantly breach $1520 in the near term.

And while, the long-term correction in gold may not be over, one should see a substantial pull back from the $1470-$1520 region in August.

Don't remain short and look for buying opportunities in a panic.

. . .

Silver

Silver closed the week at $26.90.

Whichever way you look at the Silver chart it has bear written all over it.

I don't trade the metal and this commentary is included here at the request of some tweeps.

Silver could pullback again from the floor at $26 but the floor is likely to give way before we can see a meaningful rally in the metal.

Silver could consolidate for a while above $26 before it builds up momentum to try and breach the $26 floor again.

The huge gap $30 and $32.5 is likely to act as a tough overhead resistance to any bear rallies.

Avoid trading the metal until the floor at $26 is decisively breached.

. . .

WTI crude

As noted in my last blog post, Crude oil had a price target of $75.

During the week, Crude made a low of $77.93 before closing the week at $79.76.

Crude continues to be in a downtrend.

The first target remains at $75.

Below $75, oil has a floor of sorts $64.

But for all practical purposes, a decisive violation of $70 implies a retest of the $35 level again, which I don't think is on the cards.

Maintain my view that the current down trend is a correction to the rise in crude prices from $32.40 in December 2008 to $114.83 in May 2011.

That was a rise of $82.43.

A 50 per cent retracement of the increase in price from December 2008 to May 2011 yields a price of approximately $75 that ties is neatly with my target of $75.

The ensuing weeks are likely to see a repeated testing of the $75 along with some base building for a subsequent rally in prices.

I would, therefore, expect crude to consolidate for 2 months between $75 and $80.

As mentioned in my last blog post, I don't see the consolidation in crude prices between 75-80 level lasting beyond September.

India's window of opportunity for POL sector reforms lies in the time between now and end September.

. . .

Euro

Contrary to all the screaming headline and the adverse news flow, I can't find a reason to be bearish on the Euro.

Which sort of tells me that all the bad news was already in the price.

As always, I concern myself with what the price action tells me.So I will stick with that story.

First point to note is that Euro made a low of 1.2286 on June 1.

This low was substantially higher than the corresponding low the Euro made at 1.1871 back in June 2010.

Therefore, as long as the low of 1.22886 is not violated the trend shorting the Euro expecting a collapse is a low gain high-risk gamble.

After making a low on June 1, EURUSD made a high of 1.275 on June 18 and has since corrected down to a low of 1.2518 before closing the week at 1.25680.

That correction implies a 50% retracement of the rise from the recent low on June 1.

In my view the correction in the EURUSD pair may be over and the Euro is likely to resume its uptrend next week with a first target of 1.275.

The ultimate target of this rally remains 1.32.

. . .

$-INR

As expected in the last blog post, the USD continued to consolidate in the new trading range of 54.50 to 57.50.

It is entirely possible that the topside of the trading range could see an extension to 58 or higher.

But such an extension may not result in the price sustaining there.

At some point, USD sellers will have to come in.

I am, therefore, sanguine that the 54.50 to 57.50 trading range for the USD will hold for some time to come.

Having said that, RBI's trading restrictions vitiate true price discovery.

As long as these restrictions continue, the true value of the USD is unknown.

So what we really have is a guessing game that involves reading the RBI's mind.

Good to note that RBI is concentrating smoothening out the pikes instead of defending a particular value of the USD.

That is the prudent way to go even the lack of firepower with RBI.

. . .

S&P500

As expected in the last blog post, the reactive pullback in the US equity index topped out at 1363.83 and then resumed it's down trend making a low of 1324.41 before closing the week at 1325.51.

The downtrend is likely to continue next week.

The first target for the downtrend remains at 1267.

The market's reaction to this area is crucial for the future direction of the markets.

A violation of this level before the 1st week of July will be the first indication that the current correction's duration will last longer than just a few weeks.

Remain bearish on US equities.

. . .

Shanghai Composite

This blog had noted that the Chinese equity markets might have bottomed at 2132 on January 6 when this index made a double bottom at that level.

The index then rallied to 2480 in February, made a double top there, and has been correcting from there in a very orderly fashion.

After the top of 2478, the index made a low of 2242 on March 29 and rallied to 2438, just under its previous high and has since been correcting again.

It closed the last week at 2260, very close to the previous low of 2242.

The index's reaction to the 2240 in the ensuing week will be watched with care.

A termination of the current downtrend in the index will be the first CONFIRMATION that the low made on January 6 was a bear market low and that the Chinese stocks are now in a substantial uptrend.

Hence watch index carefully.

. . .

Nifty

As expected, the Nifty terminated its current pullback around 5168 making a fake head at 5200 to catch the unwary.

After making a low of 5041, the index closed the week at 5146.

The index is still slightly over bough despite the correction! 

I expect the downtrend in stocks to resume in earnest next week.

The first downside target for the index remains at 4800 followed by a deeper floor at 4520.

Stocks are likely to drift towards 4800 during the ensuing week although they may not get there.

Also watch out for sharp bear rallies in individual stocks.

This is the season for such unpredictable rallies to correct for oversold conditions.

Don't chase them.

They are not buying opportunities much less breakouts.

We are, however, towards the fag end of the bear move that has lasted for over an year.

Be ready with your blue-chip buy list and stalk them for buying opportunities in a panic.