Technically Speaking
South Asia Technical Analysis with Phil Smith
SENSEX – Bumping on support. Gold – Hitting resistance
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The SENSEX moved up off longer term support at 14,097 to bump up against resistance at 14,645 on Friday. You can see these levels marked on the two charts on the left the first is short-term, the second longer-term. The short-term trend indicators we have had are marked with arrows on the first chart and the latest ones on the Parabolic-SAR and MACD studies are now bearish as you can see. The Alpha Beta trend is now neutral from bullish. So, the near-term indicators are pointing down and we need to keep a close eye on these supports carefully as it might mean this small downtrend we are currently seeing may be short-lived. So far, they are holding well.
The second chart shows the longer term chart support being the 38.2 pct Fibonacci retracement of the entire SENSEX upmove. We are on very significant support and this is why the market is holding up despite the bearish indicators.
DECOUPLING
While the SENSEX decoupled quite nicely from the other Asian markets following the government victory at the vote of confidence and the associated politics. It was clear investors took this outcome positively and bullish for economic reforms. However, given the inflation and growth backdrop at least some of this enthusiasm has evaporated and the negativity elsewhere on the Asian stock markets has begun dragging on the SENSEX again.
That said, at 12.40 percent inflation number for mid-August was lower than expected by the market and indeed moderated slightly and the 7.9 percent GDP number was taken calmly by the market despite being slightly lower than anticipated.
The third chart is a correlation chart of the SENSEX versus the MSCI Asia stocks index ex-Japan which shows the India market decoupled form the Asia markets since the beginning of the month but you can see the line is turning less negative so the Asia market are starting to have more influence and the SENSEX moving less under its own steam. The correlation index is still negative as per the sub-chart but less so in the past few days. It seems the drag of the Asian markets is starting to exert more influence over the SENSEX.
WATCH THE RUPEE
The fourth chart has the 10-day correlation study of the SENSEX vs INR and this is turning down quite sharply so the link is clearly breaking down now. A very high correlation between the two has existed for around a month and the SENSEX moving in lockstep with the INR. If you watch one, you must watch the other.
GOLD – HITTING RESISTANCE
And finally a look at gold. Gold has seen an excellent bounce off the strong 785 support level, a level that has been evident on the chart for weeks now. It was very strong support in Q4 last year.
But, 835 is the big resistance level and as you can see from the chart is providing a solid barrier to further gains. All the recent closes have been below and US trading on Friday did not break the pattern. One to watch for sure, and a break above would set up a move to the next two resistance points as marked on the chart at 850 and 859. But 835 is the key overhead resistance level being around the peaks reached in 2007.
The Commodity Channel index has broken up through the negative 100 line which is a bullish signal. The Parabolic-SAR has also switched to bullish and the MACD lines have crossed.
But the signals are not that strong and we should continue to not yet be looking too much to the upside and there is need for caution. The start of the bearish move is marked with the latest set of black arrows the MACD and P-SAR flagged it very well.
. Gold’s negative correlation to the USD. As we all know the dollar movements affect the gold price but at the moment this negative correlation is strong and risingThe last chart is a very long-term chart of the gold price versus the oil price.
This is a long 100-day correlation and as you can see historically the linkage goes from positive to negative with slightly more bias to the positive. At the moment the correlation is very high. If you watch gold you currently have to keep a close eye on oil.
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The Wall
interesting thing to note is that when silver and gold correct significantly (silver down more than 20% a few wks ago) global deflationary spirals occur, also stock market bottoms tend to occur a few weeks after gold bottoms, so expect big volatility ahead.
Hi Phil, love to read your TA. Very interesting charts. Since there is so much talk of Oil price in the market, it’d be interesting to see what patterns can be ascertained visually between Oil price in $ and Sensex, & their corelation, & of course, your analysis of it.
Hi Rajveer, I’ll try and chart the gold/stock market cycle to see how acute the correlation is.Paresh, yes I do have charts on the Oil price and $ correlations etc. I’ll post another blog on it in the coming week or so. I’m travelling just now so it’s a little difficult.
indian markets are very very interestingly poised as on todays open..nifty trading around 4440..in my opinion if this week closes nifty above 4416,,some how..than we are surely headed for a rise of atleast upto test 4650,and than 4778 also will be a sure possibility at the moment i cant see much more upside than 4778, will have to look at the strenth of this possible up-move .
global deflationary scares should take us to 4000 soon i think.
want to express my thoughts on logic of {sometimes very confusing and even seemingly funny logic},big market players and media……..when oil was shooting up from around 110 usd levels,concerns were expressed that high oil prices will adversly affect the economy,,viz..high inflation——-higher interest rates—-so higher cost of mony for the companies—–lower profits—-slow down of the economy,,,oil reached 140s and fear gripped even the analysts…in the meantime oil started its southward journy—but within a period of 2-3 months the central bank tightened its measures,,,resulting in higher interest rates,,,so now every one said it will be a very heavy slow-down,,,economic figures responded this thought briefly during may-june..but bounced back smartly as per the figures released yesterday…now intersting things started to happen,,,oil tanks to 100 usd…a massive erosion of 47 usd per barrel in a short 2-3 months period,,,comments from media ???? economies world over are so much in bearish mood that they will consume lesser oil..so lower demand and lower price..naturally !!!!!!!!!….untill almost yesterday media expected the economy to slow-down ,,right ??? suddenlY the IIP data showed that they were much stronger THAN WERE EXPECTED !!!!!!!!!!…after the data were released the markets bounced back from their intraday lows very smartly…untill 2:45 pm picture looked quite rosy..that markets are welcoming good iip numbers…last funny act starts here…banks which were up smartly from their lows of the day..suddenly started crashing..and so were the indices….thoughts of big players and media ??? very very intersting…..now that economy has showed its so called underlying strenth ,,,the central bank CAN take more steps in the direction of tightening..ANOTHER HIKE IN THE INTEREST RATES..{economy is so strong it can withstand it}…and so more pressure on banks ..so they are tanking !!!!!!!!!!…intersting and funny ,isnt it ???
on 24 th august i wrote here that if next 2 weeks markets are unable stop the loosing streak we are sure to see july lows,,,which are offcourse very very strong supports for india markets,yesterday i posted an article suggesting that we may first see a bounce upto 4200-4300 and 14300 levels,than we may get supports at 3790…12500 levels,,,i also said that the strenth in sbi .larsen ,ntpc and monthly structure of reliance suggests that the july lows will be giving strong support to our markets ….but what a moove in just two days,!!!!!!!!,today it touched 3799 amidst strong bearishness the world over..i do not think any one would have given a thought of such a strong and mighty bounce back..but thats markets for you,,a strong double bottom formation on daily charts.just a day left in the week,if inflation figures can give pleasent surprise,,tomorrow too this rally can get extended which will form a weekly hammer pattern in indices and also in some major stocks so who knows ….we again may have seen a very very strong bottom.perhaps much stronger than when these levels were hit in july-08…and remember to have a glance at india charts and compare them with the world market charts.