Gold has a crucial overhead resistance at $1800. A breach of this will almost certainly signify that the correction in gold is over and the long-term uptrend may resume in the metal. The resistance may not be taken out at first attempt. A failure to breach $1800 will mean some more sideways movement before the impasse is resolved. Until there is confirmation of reversal, the current long-term down-trend must be assumed to be in force. Watch the $1800 region like a hawk.
Silver [$SILVER]: Silver appears to be making a bid for the $37.50 overhead resistance. It may not go all the way but has time to get there on the charts. No indication on the charts that the rally is exhausted.
Silver charts indicate there is no serious threat to the long-term downtrend in silver which sort of supports the long-term bearish stance in gold. A breach of $37.50 on the upside will obviously negate this view. Avoid initiating fresh sales. Even if $37.50 is not breached, the metal could move sideways for quite some time.
Crude Oil [$WTIC]: Crude has shown the treacherous nature of this market like no other asset class. After moving below its 200 DMA and staying there for a few days, crude reared its head to close the week well above the critical 200 DMA. Crude was last reported at $99.
Crude has a crucial overhead resistance at $100 that it is currently testing followed by a more substantial one at $105. I don't think the $105 level will be taken out any time soon. Crude needs to consolidate around its 200 DMA at $96 to $105 for few weeks before moving up again. That said, I remain bullish in crude. Buy the dips is a good strategy here.
US Dollar [$USD]: As mentioned in the last blog post, the mighty $ has been in a correction but was expected to find support at or near its 200 DMA 80.78. However, the $ breached that support following the surprising [unlimited] QE3 and closed the week at 78.84. The sharp rallies in asset prices, especially commodities, are merely a reciprocal of the value of the $. No, that's not a factor in my analysis.
The $ has a support at 78 followed by a much more solid floor at 76. The fall in the value of the $ appears to be overdone even though the correction is not over. Expect a bounce from the 78 levels. A very sharp rally from 78 can't be ruled out. There is a scenarios which says the $ correction is substantially over and a resumption of the long-term uptrend could begin over the next few weeks. That has implications for all asset prices.
Euro$ [$FXE]: Euro$ rocketed through its resistance 1.31 to close the week at 1.31240. The euro has a more substantial resistance at $1.33 and could attempt to take that out next 2-3 days. However, the more likely scenario after that is a sideways movement for few weeks to consolidate recent gains.
Nothing on the charts to indicate the uptrend from 1.2050 level is exhausted. In fact the break above 1.31 or a shy at 1.33 will confirm that the euro has another leg to the upside after a correction. The correction itself could be fairly sharp and could easily test the new floor at 1.27.
$ fell against the INR, closing the week at 54.30. The $ has a floor at 54 followed by a deeper floor at 52. The odds favour a pullback from 54 levels to back in the 54-56 range for a further period of consolidation. A breach of 54 will test 52 but the probability at this stage is small.
S&P 500 [SPX]: As indicated last week [based on $NYA but equivalent level on the $SPX is 1420] a break above 1420 has completely changed the nature of the correction in the US markets. $SPX itself closed the week at 1465.77.
The next significant level on $SPX is 1530, 1500 being just a round number.
Unfortunately, at this point, there is no credible way to predict where this uptrend will end except to say it is basically reactive even though the reactive bounce so far has been higher than the initial fall. That changes with time to normal. The US markets will correct, perhaps by middle of November. Until then use parabolic stops to protect your long positions. Don't chase the rally.
The Sensex could vault over 18,500 Monday before going into a sideways correction for a few weeks. The next major resistance is at 19,160 followed by 19,800. The extension to this rally has opened up intriguing possibilities that need to be explored as the next few weeks pan out. The possibility of a pull back to all the way to 21,100 is all too real depending on how the market pans out over the next two weeks.
Even if the rally materialises, and I am not sure it will as yet, it will be a very treacherous run up. Protects longs with parabolic stops on auto. On the other hand, a retest of 15,500 isn't ruled out either after the current rally exhausts itself. We will know for sure only as the markets plays out its moves. As always buy into blue chips that are currently at lows for bad news flow. The news cycle turns but blue chips stay blue chips.
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