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MARKET NOTES: 01-12-2012: Equity valuations headed up
December 1, 2012 SonaliRanade	Leave a comment Go to comments
MARKET NOTES: 01-12-2012: Equity valuations headed up.
Gold has been correcting from its recent top $1795 in October 2012. It made low of $1672 in November that was just above its 200 DMA, and thereafter topped out 1754 after piercing its 50 DMA. Since then its been consolidating above $1700 but below its 50 DMA which is currently at $1740.
As noted in the last week's post, gold is now in an intermediate uptrend whose logical target on the upside is the previous top of $1925. Going by the wave counts, the correction from the recent top of $1795 is over and we are now building a base just above $1700 for the next leg of the rally. Bulls may keep stop loss at the 200 DMA, which is currently $1650.
Superficially, Silver looks like it is in an intermediate uptrend like that of gold, which is partially true. However, the uptrend in Silver is structurally much weaker in momentum and duration than gold.
Silver is currently placed at $33.15 just at its 50 DMA, unlike gold, which is below its 50 DMA. That's more because the long-term down trend in Silver has been much stronger in Silver than in gold rather than silver being the stronger metal.
I expect Silver to move sideway for a few weeks below its recent top of $35.50 but above its 200 DMA, which currently is at $31. Silver will mimic gold in reaching for the pervious top but with a lots more volatility and lag. Avoid the metal till it builds a base above 31-32 range.
WTI Crude:
Crude has been in an uptrend since it hit $77.28 on 28th June. Since then it topped out at $99.44 and has been correcting since hitting a low of $85.42 on 6th November.
In my view this correction is now complete both in terms of time and price and crude is likely to drift upwards to a first target of $93, which is also its 200 DMA area.
First confirmation of the $93 target will come when crude tops its 50 DMA now at $89. Bulls may keep a stop loss at $87.
US Dollar:
Weekly charts in currency trading are rarely used but we are looking to understand once in a 50 years cycle triggered by unprecedented Fed actions. So looking at long-term trends is not entirely out of place to get a perspective on what's happening in the market place.
The above chart shows the $ in a decline from the top of 89 to a low of 73 over a period of 12 months starting June 2010. Over the next 12 months, from June 2011 to July 2012, the $ managed to claw back about 69% of the drop from 89 to 73 and has been falling since then.
This decline from 89 is itself the C wave of a larger decline of the $ from 128 in December 1985 to the low of 72 in April 2008. So we are at the fag end of a wave C down whose logical target is 71. Hard to say if it will get there but the long-term down trend has most likely reasserted itself.
The $ is below both its 200 and 50 DMAs and is currently at 80.16. Its next target is 79.70 followed by 79. A fall below 78.50 will be the first confirmation of the above long-term prognosis. Until then one should presume the $ is headed for a retest of 78.50 in a fairly routine correction.
Euro$:
Since we are looking at long-term currency trends, we might as well note that pullback of the Euro$ to the 1.35 region or above would not be out of place in its current intermediate uptrend. The correction in the Euro from its recent top of 1.31 is likely over 1.2650. The next logical target for the Euro is 1.3175. The long-term scenario will come into play if, and only if, it sustains over 1.32 for some time. Do remember that this more a pullback rally for the Euro and not an impulsive bull wave.
As expected, the $ met with a strong overhead resistance at INR 55.50 and reacted sharply from there and closed the week at 54.26. The next support for the $ lies at its 50 & 200 DMA both of which are positioned at 53.80. A failure to hold that level see the $ testing 51.50.
The more likely scenario of the $ against INR is a triangulation from the top of 57.50 and the low 51.50 as players try to discover the price. Remember the $ itself is likely to be very volatile & its value against the INR is partly a "derived" price. Interesting times ahead.
NASDAQ Comp:
You can talk yourself blue in the face debating the merits of central bank intervention in markets. But the converse of currency debasement in asset price inflation without being matched by growth in earnings immediately. Are we likely to see that phenomenon? I leave that debate to fundamentalists.
The technical are however straight forward. By reversing from the low of 2810 and piercing through both the 50 and 200 DMAs at 2950, the NASDAQ has just signaled a resumption of the uptrend and wave 5 of wave I from the lows of March 2009. Too early to guess what the target could be but waves_5s are not only violent but also surprise in strength and duration.
S&P 500:
The wave count for the SPX is straightforward; some would say too straight forward! Like the NASDAQ, SPX too reversed from the rally's base trend line and then went right through the 50 and 200 DMAs.
SPX closed the week at 1420, a key overhead resistance. If it crosses and sustains over 1430 next week, the next logical target becomes the previous high of 1475. Too early to call where SPX will eventually end up but the uptrend is firmly in place.
NIFTY:
While the wave count for NIFTY looks analogous to that of the NASDAQ and SPX, it is quite a different animal and may in fact be just wave III imbedded in a larger wave up from the low of 4525 registered in December 2011.
NIFTY closed the week at 5880, a notch above the recent high of 5817 registered on 5th October. We can expect NIFTY to come back and test 5810-20 as a support before moving on further.
The next logical target for the NIFTY is 5950, followed by 6175. Barring the usual corrections on the way, NIFTY too appears to be firmly in an uptrend the top of which is too early to call.
The bull run in equities continues & commodities may have turned down again MARKET BLOG: 24-11-2012: This leg of the correction may be over.