Superstar Trader Savio’s Weekly Global Market Update – 24th October 2010

Hi   friends,

The week went off as expected. A bit choppy but no real action in terms of a determinate continuation of the uptrend or a reversal in the US markets, currency markets and most global equity markets. The last week did not have any major events and the overall market movement was expected. Almost 79% of companies in the US which have declared results have exceeded analyst expectations. Apple did see a sell off after market hours when the forecast for the fourth quarter was below analyst expectation. Overall the equity market, commodity market and most other asset classes are directly correlated to the USD at the moment. When the USD rises most asset classes decline and when the USD fall most asset classes rise.

Next week has a lot of important news events which need to be closely watched. The week starts with Mr. Bernanke’s Speech followed by existing home sales. With foreclosures being temporarily closed by major lenders like Bank of America this figure could come below expectations which could affect the stock market negatively but which could get compensated with better than expected results from companies declaring results next week. This will be followed by the CB Consumer Confidence on Tuesday. Wednesday will have the Core Durable Goods Orders and the New Home Sales. On Friday the key event to watch would be the Advance GDP qoq.

While you hear everywhere that the USD is oversold and could reverse in my opinion there is no such thing as oversold in currency market. The currency market has almost unlimited supply unlike the stock market where the free float is the maximum supply available. No wonder retail traders almost get wrong footed using oversold/overbought indicators in the currency market. The only way the currency moves are fundamental events. Sometimes irrationality does drive the price in the opposite direction for some time but eventually long term trends are purely based on fundamentals. Even pullbacks are determined by fundamental events which go in favour of a declining currency and not oversold/overbought conditions. So if there are any events which are better than expected then the USD will reverse irrespective of the condition but the trend against most currencies is down, hence eventually these pullbacks will not last beyond a certain point.

Things have been changing on the global front in terms of power and say in macro global issues. The US has reportedly pledged at the G20 meeting that they would take due precaution not to devalue the dollar in return for an agreement from emerging countries that they would let their currencies freely appreciate (Sources: Reuters). What this basically means is the USD could see a short term reversal(upmove)  in coming days against currencies of such as Euro,GBP while could see a downmove against the currencies of developing nations like India, China, Brazil, Russia. If that happens we could see a downside in stocks globally, commodities, gold, and silver in coming weeks. Another significant move is the transfer of 6% of the voting power to developing nations in the IMF. These clearly show that slowly and steadily it is going to be difficult for major nations like US to command unilateral power in future.

However as I have said before till liquidity is flush the equity markets, commodities, gold, silver are likely to head higher in the medium term even at the cost of creating asset bubbles. It is only when the liquidity is retracted by the US and the Dollar reverses its long term downtrend will the asset bubbles eventually burst.

What Are The Markets Saying?

US Markets

S&P500

The markets are likely to be choppy next week with key events set to dominate proceedings. The key support for the market is at 1140 and the key resistance is around 1192-1200. The strategy would be to sell at resistances and buy supports till there is a breakout or breakdown.

Nasdaq100

With technology outperforming this index is likely to see 2121 in the coming week

Indian Market

Nifty

The nifty is a sell on highs at around 6150 for a target of 5850.

PS: The subscription service to the intraday, positional calls in stocks, currencies would be starting soon.

All the Best!!!

Savio

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Tags: G20, Nasdaq, nifty, S&PCNXnifty, SP500, SPX, SPX500, SPY