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A market pullback that may challenge previous top

November 12, 2012 14:15 IST
However, a higher high from this rally will not negate a deeper correction to follow sometime in December, says Sonali Ranade

Gold

Gold: Gold made a low of $1672.90 last week, a little above its 200 DMA, which was then positioned at $1662, to close the week at just under its 50 DMA at $ 1730.30. The pullback from the recent low of $1672.90 is reactive in nature. Gold could to above $1700 but below its 50 DMA for the next week or two before retesting, and possibly breaching its recent low. The long-term correction in gold from its $1920 peak is not yet over.

 

 

Silver

 

Silver: Silver, like gold, bounced back from its 200 DMA closing the week at $32.56 after having made a low of $30.67. The pullback appears reactive in nature and may not top the 50 DMA significantly. Expect a retest of $26 area before a tradable rally ensues.

Crude

 

WTI Crude: WTI Crude made a low of $84.05 during the week before staging a pullback and closing the week at $86.07. The weekly crude chart above shows crude to be in a terminating C with a target $76. It will take 2 to 3 weeks to get to the target.

 

US Dollar

US Dollar: Reproducing last week's chart for the US dollar that showed the Dollar Index headed up towards 81.20. DXY closed the week at 81.09 after having made a high of 81.175. The DXY has a very strong overhead resistance at 81.50 following the immediate one at 81.20. I expect the Dollar to turn down from the 81.50 region as the correction from recent top of 84 is not yet complete.

 

EuroEuro$ [EURUSD]: This is essentially last week's chart that predicted euro to breach the 1.28 mark and head towards 1.26 mark. That is exactly what the euro did closing the week at 1.27080.

Minor reactive pullbacks could see the Euro$ retest the overhead resistance at 1.2800 over the next week before proceeding towards 1.26. A fall to 1.26 from current levels before a rally can't be ruled out either. Note, 1.26 is just a support.

 

Rupee$-INR: I expected the $ to turn down from 54 for a retest of the 52.50 region before the $ resumed its rally. However, the $ rallied past its 200 and 50 DMA and closed the week at INR 54.58.

With this rally in place, my preferred wave count is shown in the chart above. Clearly, this wave count indicates a retest of the INR 57 level in due course. Note, the $ has a strong resistance overhead at 55.75. Should the $ pierce through this level, the probability of a retest of 57 region becomes most likely.

NasdaqNASDAQ Comp: NASDAQ Comp closed the week at 2904.87. The index is due for a pullback from current levels that could hold a few surprises. The big question before traders is to decide if the current fall to 2850 is a wave 4 with wave 5 up yet to come or the next pullback will fall short of the previous top and the fall will continue on to 2700. Short-term wave counts favour a pullback all the way to 3200 although; the index could fall short of the target. Not exactly bullish on the NASDAQ but expect a pullback.

 

spxS&P 500: What applies to NASDAQ Comp, applies to SPX as well. The current fall to a low of 1373 just atop the 200 DMA could turn out to be a wave4 correction with a wave 5 to follow towards the top of 1475. It isn't certain though. What we can expect is a pullback from current levels and the strength of that pullback will tell us if we have a wave 5 or just wave 2 up following the fall from the recent top of 1475. Either way, a deeper correction is sure to follow.

NiftyCNX NIFTY: NIFTY's current stance is very similar to that of SPX and NASDAQ although the structure of wave counts is very different. After making a high of 5815, NIFTY has made a low of 5583 [ignoring the mini-crash low of 4888.20 on October 5]. It is currently on a pullback from there and the target of the pullback could be previous top of 5583 or even higher.

However, a higher high from this rally will not negate a deeper correction to follow sometime in December. Terminating C waves can be very violent and erratic and there is nothing to indicate that we are not in one so far.

NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

Sonali Ranade is a trader in the international markets
Sonali Ranade