The Global Market Trader Weekly Update – 20th November 2011

Written By: Savio Rodrigues on November 20, 2011 No Comment

HI friends,

While the retracement in the Dow and European markets has been more or less in line with expectations the retracement in the Indian market has been a bit severe and has raised a doubt on the double bottom formation made in September. While the Dow and European markets retrace a bit more in the coming week the Indian Market could make a new short term low before rallying in line with the Dow and European markets . Although the Dow and European markets have retraced they still remain in a bear market rally which started in 2008 and the conditions are not ripe for the final assault of the bear. Commitments continue to be low. Sentiment is still bearish. A lot of cash still remains on the sidelines. How can the Dow go below 6400 under such circumstances? So, in my opinion, the market is set to rally, possible one final time, after this retracement and the rally is likely to be of a larger duration, possibly 3-4 months giving a false feeling that all is fine or the worst has been factored in. The bullish count in the US dollar is also very high at the moment and although the upmove in the dollar could continue for a week or two the lopsided positioning is likely to reverse soon. Fundamentally the USD is not a strong currency anymore. With a national debt of 14 trillion dollars and continuous problems in the economy it is bound to be under pressure. So we are going to see strong price and market volatility in the coming months.

As I have been constantly reminding investors that US and Europe remains in secular bear market!!! What we are seeing right now is a final stage where prices move up before the final bear assault begins to take prices below the previous lows.

The most bullish asset remains gold and after a long time I feel that around $1600-$1500 one should buy this asset for a target of a new high. The bullishness stems from 2 important factors and it does not take a PHD to state those. The two factors are 1) Uncertainty which is not going to go off anytime soon and 2) Inflation. While right now the US and Europe remain in a deflationary environment the printing of money and increasing its supply reduces the purchasing power of the currency and since the dollar is the reserve currency it is set to create a global inflationary environment in coming years. So gold is the best hedge and we are seeing countries like India and China constantly increasing their holdings in Gold.

What Are the Markets Saying?

US Markets

Dow Jones Industrial Average

The index failed to reach the mark of 12500 and looks set to test the level of 11300. The level of 10800 remains a key support in the medium term.

S&P500

The index failed to reach the level of 1305 and is now set to test 1190. The level of 1100 is a key support to the index.

Metals

Gold

Long term investors and position traders can now look to buy into the metal @ $1500-$1600 for a target of a new high.

Currencies

Euro/Usd

Looks set to retest 1.31 and possibly go below it before making a strong reversal for a few months. For the next week look to sell at resistances. The level of 1.3450 is a key support.

Gbp/Usd

The pair is likely to head to 1.5200 in coming weeks. Look to sell at resistances.

Indian Markets

Nifty

The key stocks in the indices have given breakdown. Reliance Industries, State Bank of India, Tata Steel have all broken key supports. Technology stocks have managed to withstand the assault. The alarming rate at which midcaps have been thrashed indicates that the 4700 is not the short term low as I thought was earlier. By short term I mean next 3 -4 months. So that is right then the nifty is likely to bottom out somewhere between 4580-4680 before heading back to 5450.

For the next week 5050 is a key resistance which looks difficult for the index to cross. Sell on rise till 4680 is reached. Reversal above 5200.

Note: The eventual lows will be much lower when the Dow starts its collapse which is likely to happen sometime next year possibly after March 2012.

Happy Trading!!

Savio

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