The Global Market Trader Weekly Update – 16th October 2011

Written By: Savio Rodrigues on October 16, 2011 No Comment

Hi friends,

The week was a stunning week and more of a decider week for the next 2 months. We can now safely conclude that the markets have a short term bottom in place. The Dow and the Dax made lower lows and then created a massive impulse wave indicating that it is headed higher in the short term. The nifty did not make a lower low but it made a double bottom kind of formation which implied that the strength of sellers has reduced and a bottom is in place. Now before you come to any conclusion let me make it clear that in my opinion as has been since the start of the rally in 2008 the DOW and the DAX are in a BEAR MARKET RALLY!!! Bear market rallies can last upto years and we are already in the 3^rd year of this rally and most probably in the last phase. It is difficult to say when it will end and as a trader it wouldl also be foolish to predict the end. But bear markets end when everyone is pessimistic and there is panic and we are nowhere near that now. In fact in my earlier write ups I had stated that it was unlikely for the Dow to go below 9880 in a worst case scenario in the current downleg. The bear market will end eventually when the Dow gets to below 6435.

Fundamentally nothing has changed. In fact things have worsened across the globe. Even growing countries like China and India are showing contraction with PMI going below 50. Europe continues to reel under debt while G20 meeting are still held in France, one of the most expensive places in the world. Wall Street protestors have taken to the streets. Rome saw a massive protest which was quite violent. So overall nothing has changed. What we are seeing in the markets is a typical pullback wave to get as many investors into the market before they finally nosedive. Do you get the feeling of missing the rally? Of course you do and so will most investors. And you will find investors buying into dips now and the rally will look nothing short of a beginning of a bull run. For Investors it is a caution not to buy stocks if your horizon is 2-3 years. If you are a trader you could ride the trend for the next 2 months which is up. Traders who are short on the index will get a chance to cover their shorts as most markets are near resistance and are likely to retrace. Do not consider this as a positional shorting opportunity but rather exit your shorts on decline. Else you may get squeezed very badly. The DOW has given a target of 12225 by the year end and the DAX 6200 and if that is crossed then 6750. But before that happens there is likely to be a retracement to test supports. The Dow is likely to hold 11000 and the DAX 5650. Since these are the indices which most markets are following it is clear that all global stock markets are in for a massive upmove which could frustrate even hard-core bears. But the bears are likely to have the last laugh as eventually global markets are likely to tumble given the pain in Europe and US and the scenario is likely to be very much like 2008.

Now in this scenario it becomes very important to discuss gold. Although I believe that it is yet to form a bottom ,investors can buy this asset class as a safe bet. The price I would prefer buying would be around 1450$-1325$. Eventually we are likely to see a price of $2000.

What Are The Markets Saying?

US Markets

Dow Jones Industrial Average

The index is near its resistance around 11700. The CBOE VIX is around 0.56 which is slowly indicating complacency. Whenever it has come to 0.50 there has been a good retracement. So the scenario is ripe for a retracement. The level of 11000 is a good support. Shorts are advised to cover positions on decline.

Currencies

Euro/Usd

The pair has a potential to hit 1.4050 after which a retracement is likely. The support is now 1.3700 which is the 200 period lower containment zone (1.25 standard deviation)

Gbp/Usd

The pair is in a retracement and could move towards 1.6200 in coming days. Support is at 1.5650.

In the long term both are headed downwards. The price action reading is in line to the reading of price action of risk assets which are moving inversely to the dollar.

Precious Metals

Gold

It still appears to be in a retracement to the fall to $1525 although price action has been complex and choppy. On a safe side I would not go long as I suspect a pending downmove below $1525.

Indian Markets

Nifty

The nifty bounced back strongly ignoring bad IIP numbers, PMI as well as high inflation. When these things happen one knows that markets are moving up on weak internals. Right now the nifty is close to resistance at 5200 and a retracement is likely. But the overall trend is up in line with global markets. On a decline 5030 is an immediate support and 4950 is a strong support. Metals and banking look weak and could retest their recent lows. After that the upmove is likely to be very sharp. On the upside the level of 5200 is likely to break and immediate target is 5450 which is the upper end of the weekly downward channel.

Happy Trading!!!

Savio

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