Nifty could consolidate below 6100 for a week or so. Those who missed the bus at 5400 could consider buying their blue chips in the consolidation that ensues, says Sonali Ranade
You can’t really argue with markets making all-time new highs. All you can do is follow humbly looking for the first sign of weakness or a crack and of that there was little on the charts. That said, US and EU equity markets are in the over-bought zone and need to test previous resistances as new supports in the week ahead. So expect a bout of consolidation.
But his isn’t about fundamentals and so I am not going into the debate about what’s driving the currency markets -- dollar strength or yen and EURUSD weakness, both of which cracked up on Friday. I prefer to view it as dollar strength because I have been bullish on the dollar right from May 2011 and to me the DXY is just launching into its wave 5 that will take it above its previous top of 84.25. But the dollar strength is going to impact commodities, further compressing prices while the equity markets may in fact ignore it.
Crude has been the odd man out in the commodities markets where even gold, with an army of stale bulls buying the physical metal, has given way. In a manner of speaking, crude has been doing a series of counter-trend rallies, which at no pint threatened $100 let alone get near its previous top. My sense is that these series of counter-trend rallies are coming close and the next serious drop in crude prices may not see the sharp and strong rebounds that have characterised previous drops. Get ready for prolonged subdued crude prices.
Gold has yet to find a bottom, and given its tendency to excessive volatility in drops, it is hazardous to try and call a bottom. So wait for a confirmation. For position traders the next bottom would be a decent buying opportunity from a medium term perspective.
Nifty could consolidate below 6100 for a week or so. Those who missed the bus at 5400 could consider buying their blue chips in the consolidation that ensues.
Gold: Gold closed the week $1436.60 after making a low of 1418.50 during the period. With the price crumbling from 1489, gold now starts the hunt for bottom that will make a decent stab at taking out $1321, its previous low. Given the wild swings in gold prices, and investor attitude towards the metal, a lower price of $1250 can’t be ruled out. The bottom could come around the fourth week of May. Traders should wait for bottom to buy for a modest but tradable rally that will follow in June. The long-term picture doesn’t change. Gold is in a bear market.
Silver: Silver closed the week at $23.65. Silver’s counter-trend rally, unlike that of gold, has been tepid making a high of $24.79. My sense is that silver is approaching a point where you could see price simply slide down below $20 by the first week of June if not earlier. Silver is likely to time its moves with gold.
HG Copper: Copper closed the week at 3.353, just a notch under its 50 DMA after rallying from a recent low of 3.04. My sense is that copper may have put in a bottom at 3.04. That doesn’t entirely rule out a retest of the same for there is still time for it. We could see copper retrace some of its gains in a final wave 5 that could try to retest 3.04 even if it doesn’t go all the way. First overhead resistance lies at 3.45, which will almost certainly cap this rally.
WTI Crude: WTI Crude closed the week at $96.04 after making a high of $97.1 during the week. The low for Friday was 93.37. Crude has seen a series of sharp counter-trend rallies since the low of $77.69 on June 28, 2012. I believe we are nearing the end of these counter-trend rallies and crude may be about to enter a more subdued phase of its correction. While not ruling out at another stab at $98, my sense is crude will drift down towards $84 region before the end of June.
US Dollar: DXY turned smartly from the low of the week at 81.80 to close the week at 83.23. First support lies at 82.50, which is its 50 DMA. Being overbought, we can expect a few days of consolidation above 82.50. But there is little doubt in my mind that the DXY is headed for a retest of 84.25 over the next few weeks. In fact the target for this bull run, which started at 72.92 in May 2011, could be much higher and that has implications for commodities and stocks!
EURUSD: The euro closed the week at 1.2992, more or less at its 50 and 200 DMAs after making a high of 1.32 during the week. That sets in motion the wave C of the euro’s correction from the top of 1.37, which has already seen a low of 1.27 in wave A. Over the ensuing week we could see the euro pull back up to the 1.31 region in a reactive move before resuming the decent to 1.27 if not lower. Best not to call a bottom in the euro.
USDJPY: The USDJPY pair surprised by taking out the yen 99 level rather convincingly, making me to go back to the drawing board to pick another wave count. The new wave count with make the correction we saw from the beginning of February to end April as a running wave 4 correction and we now into wave 1 of Wave 5. Too early to estimate targets before the wave count is confirmed but we could see USDJPY consolidate above 100 for the rest of the week before taking another stab at the overhead resistance at 102. Bullish on the dollar as you will recall from the commentary on DXY!
USDINR: The dollar closed the week at INR54.80 mirroring the strength in DXY overseas. The dollar had a target of INR 55.50 in the current counter-trend rally and after a brief consolidation, could drift towards that level. However, the rally in the dollar may not last long in the INR market. Hard to go into the many factors here but briefly, a surging equity markets attracts dollar inflows from foreign investors that counter the overseas strength in DXY. And the RBI is not very clear headed on where it wants to see the INR.
DAX: The DAX closed the week at 8278.59 after making a new all-time high of 8358.23. A consolidation above 8100 during the next week will more or less confirm that the DAX has given itself another leg to this bull run that can extend up to October this year. Enjoy the ride with a stop loss just below 8100. There could be doubts about the above prognosis if the DAX cracks 8100 in the ensuing consolidation.
Nasdaq100: The Nasdaq100 closed the week at 2981. It is due for a mild correction that could test first support at 2877, which is also its 20 DMA over the ensuing week. Upon the support holding, there is nothing to suggest that the rally in Nasdaq100 ends at anytime before end of August. Enjoy the ride with stop just under 2850.
S&P 500 [SPX]: The SPX closed the week at 1633.70 after making a new all-time high of 1635.01 during the week. The index is due for a bout of consolidation just above 1600 over the next week or so after which we can expect the rally to continue till August end. The rally will only be called into question if first support at 1600 is seriously violated. Until then enjoy the ride with stops just under 1600.
NSE NIFTY: The Nifty closed the week at just under its first serious overhead resistance at 6110. The Nifty is definitely overbought and the oscillator charts are signalling a correction that could see the Nifty test its 50 DMA at 5800 or even its 200 DMA at 5700. Nevertheless such a correction, while sharp, would be brief and my sense is that the Nifty could well see much higher levels before we see a meaningful correction. Meanwhile, I continue with my wave count that suggests we are at the beginning of a new super-cycle as mentioned last week.
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 no one should rely on them for any investment decisions.
Sonali Ranade is a trader in the international markets