NIFTY and INR - Up or Down??

I wrote this in November:

Meltdown

Obviously there could not have been a bigger "sucker" call and my technical and market timing skills leave a lot to be desired. :(

But if I say, the call went wrong on the timing front then do I still stand by the call of a big market fall? Read on....

Lot of things have happened in the last month or so.

- Rupee touched 54 in December, but we had a big rally back to around 50 today. 

- Markets bounced back with a vengeance. FIIs have bought quite a bit, not only in the equity markets but the debt markets as well.

- European problem seems to be dragging on, though the worries seem to have subsided a bit.

- RBI has come out with a CRR cut to boost liquidity.

Those look like a lot of positives.


Rupee appreciating is a positive for FIIs buying into the Indian markets. It adds to their dollar returns. But while INR has appreciated in the last 4 weeks, what I find intriguing is that forex reserves have continued to head down in the same time frame.This is despite all the FII inflows.

European problem may have taken a backseat as far as the equity markets are concerned for the time being, but by no stretch is it being close to getting resolved.


RBI cut CRR, boosted liquidity, but also for the nth time warned the government to control its fiscal position, which looks to have completely haywire.RBI has already done Open Market Operations (OMO) to the extent of around Rs. 70K cr, and the system is still short on liquidity.


So there are positives around but fundamentally issues have not been resolved and are not close to being resolved either.


With all this as a background, I find it difficult to build a case for a sustainable rally in the market. In fact, the shape of the corporate balance sheets in India makes it even more difficult to imagine a bull run.A lot of cleansing is required to build a good base for the markets to head sustainably higher.


So as of now, I continue to maintain my stand. (Hopefully I will NOT end up with egg on my face yet again!!)


- Stock markets will find it tough to rally from here. They might have just finished a big bear market rally. And they should be headed substantially lower from here.


- I had written this on the USD-INR equation


USD-INR

Most the "Drivers below 52" seem to have worked in the last 4 weeks. I will not be surprised if the "Drivers above 52" start making their presence felt.


I finish here. Hopefully I will be able to have a little more confidence when I write next and that is possible only if I get these calls right!!
Wish me luck!! :)

Crude Oil : Big Move Coming??

The amateur technical chartist (ATC) within me has taken control and come up with something. I am sure a simple chart has been converted into something really complex and exotic. But that is what amateurs do, right?? 

               Source : Bloomberg

As can be seen, ATC has managed to draw three channels in the weekly chart of Brent Crude, Yellow, Purple and White. 

Brent has spent the maximum time in the Yellow channel.It has huge deviation on the upside in 2008 and on the downside in 2009. But after having spent some time in the Purple channel, it has managed to get back to the Yellow one.

While it spends time within the Yellow channel, Brent has managed to move within the White Channel for almost the last one year. 

In this one year Brent has broken the lower end of the Yellow channel thrice and every time it has not sustained below the channel.It has taken support at the lower end of the White channel and bounced back into the Yellow Channel, on all occasions except the last where it turned around halfway through the White channel. Purple channel supported the move.

As ATC sees it, Brent is getting squeezed between the lower line of the Yellow channel, which has a positive slope and upper line of the White Channel with a negative slope.

It has been a year since Brent has traded in the range of 100 to 115$, with one exception where it went past 120$.

This one year squeeze will in all probability lead to a big move. Direction - Up or Down?? ATC knows charts dont tell which direction they are going to take. So he goes on to make a guess.

 

In the last one year, every time Brent has tried to move below 100$, it has bounced back helped by channels as elaborated above. ATC applies the theory of "path of least resistance", and comes up with odds favouring a move on the upside with the first target being 125$.

ATC does not bother about fundamentals because that gives a prejudiced reading of the chart. The fundamentals are swinging wildly between a slowdown in Europe/China, saber rattling by Iran and limited spare capacity within OPEC.

Markets factor in all the available news and events, and tell the story through the charts. It is up to us to read it properly. 

I can only hope that ATC has done a decent job of reading it!!

Gold - A Big Fall Coming ??!!

At the outset, I wish you all a Very Happy, Prosperous and Healthy New Year!!

I am back to gold this time. It has been a very interesting 2011 for gold and I thought that a few things were worth mentioning. 

Gold started 2011 at around 1375$ and ended it around 1550$. 11th year in a row of positive returns. That is a BIG bull market. But what happened in the second half of 2011 PROBABLY indicates the direction gold may probably take in 2012. 

What the starting and final quote of the year 2011 for gold does not tell us is that has touched 1920$ in September 2011. Ballooning deficits and money printing central banks had set it up nicely for gold. 

Greece was on the verge of default in September, when gold touched 1920$. 

Soon enough, Italy came with its own version of the problem in November, which was of course, far more serious than the Greece issue. Gold touched 1800$. And a little later in December, the European Central Bank came out with its bazooka, almost.Gold touched 1750$ then. 

Almost everything in the paragraph above is positive for gold. But with each incremental positive news, gold kept making lower price marks or "lower highs" as a technical analyst would call it. Once the positive news flow subsided, gold started dragging down and ended 2011 around 1550$. 

So there is a little more to gold in 2011 than just the 12-13% return it generated in the year start-to-end.

From Greece to Italy and quite a few other nations facing similar problems, gold should have ended the year much stronger. Almost everybody was and is still bullish on gold.The latest survey by London Bullion Metals Association has indicated that people in the trade expect gold to cross over 2000$ in 2012.

But gold prices seem to suggest that we are PROBABLY headed for not a such a great 2012. I will not be surprised if we end up seeing a quote of 1200$ or lower sometime during the year 2012. 

IF, and its a big IF,  that happens, does that signal the end of the long bull market in gold??

Well in December 1974, gold touched 185$ and then went to go as low as 105$ in August 1976. That is a fall of more than 40%. When we are talking of a fall from 1900$ to 1200$, it is not very different.

But August 1976 to December 1979, gold went on to touch 800$!!

So even IF gold does fall to 1200$, we should be careful with our opinions.

All this while, we have been discussing gold prices in USD terms. So what does this imply for gold prices in INR terms. Now that becomes quite complicated because it has to deal with USD-INR exchange rate.

I have discussed that before. In fact it was just the preceding article.

USD-INR Exchange Rate

I found it easier to make a guess for gold prices in USD terms but there is a good chance that I will get it wrong, so I will not even venture into trying to make a guess for gold prices in INR terms. 

Let me know if you can figure it out!!