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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.
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.