Theme # 1: Should YOU Worry?: S&P 500 closes the week down 2.21%
Theme # 2: Tracking Chinese Market
Theme # 3: Geopolitics of New World Order killing Gold and Oil
Theme # 4: Can INR withstand Strong Dollar
Theme # 5: In this new world: Panic has been Localized so far
1. Should YOU Worry?: S&P 500 closes the week down 2.21%
As you can see in the weekly chart above - S&P500 has printed a big red candle on the weekly chart. Now selling does make people nervous. But what's the big picture? After a huge bullish run in CY2014, S&P500 has been trading sideways in CY2015. The index has made many effort to break past 2131 but not succeeded so far. Last week, the index came off sharply from the highs wiping the gains it made in the preceding week.
The Big question everyone seems to be asking: Is this start of some big decline or just an orderly pull back to 2040/50 week ma? Before you jump to any conclusion: Look at the daily chart
Honestly do you see any trend in near term. Any big long term analysis right now is futile. Nobody knows how market will behave. If we go by recent history - S&P500 has been trading in circles between 2040 and 2130. Will that change? - we don't know as of now.
Bears are spreading Panic
Here's one S&P500 chart that is making Bulls nervous and Bears are flashing it everywhere.... Breakdown on trendline in weekly chart
After a steep run, some correction and sideways trading is perfectly normal. It is the steep sell off and panic selling that market is worried of. Will that happen? Well honestly - an orderly pullback in S&P500 might not be bad news for Indian market. It is the sharp selling that can send some shock waves everywhere.
2. Tracking Chinese Market
Chinese market after lots of turbulence and panic selling bounced from 200 day moving average (you see why I like 200 dma 🙂 ), thanks to huge Govt intervention. What needs to be seen: Is the selling done and can Shanghai Composite index defend 200 dma on next wave of selling because any crack below 3400 can create panic in China and the world.
3. Geopolitics of New World Order killing Gold and Oil
The world has never been so peaceful in recent history. This is the new world we live in where US is engaging with countries like Cuba and Iran and not poking unnecessarily in other countries problems. This is making the world totally different place as of now. That's not all - the Dollar is strengthening and it's killing the Gold. Gold broke down below $1150 on weekly chart. It's a major breakdown.
Gold prices were $1900 in 2011. Well 4 years later - Gold is down 37%. How many of you would have believed then that Gold could tank 37%. It did and nobody knows how much downside is left. Last time - Gold was in Bear market for 20 years. This is the slide I made two years back on Gold
Source: Everybody Loves Gold
Why Gold, the politics of Oil has turned upside down with US now major Oil producer of the world and fracking has made Oil abundant globally. With no geopolitics risk to factor in the price of Oil and stable demand - Crude between $40-$50 is now going to be reality for long time to come. Crude has tanked big time in last few weeks. Here's Brent Crude daily chart
4. Can INR withstand Strong Dollar
INR has been one of most stable currency in last 1.5 years. Despite huge dollar rally - INR traded with utmost calm and resisted depreciation beyond 64.3-64.4.
But the big queston: How long can INR withstand huge dollar strength especially when other currencies are depreciating at alarming pace. Just to give a small example of how other currencies have fared against USD in recent past. Here's Australian Dollar against USD weekly chart
In a new world order, where India wants to be competitive, India cannot have expensive currency. An orderly depreciation of 2-3% will not be so bad considering Crude now going heading $40-50 band
5. In this new world: Panic has been Localized so far
One of the most refreshing thing in 2015: Localized Pain. Panic sell off in China did not trigger sell off in other markets. Similarly, trouble in Greece did not bring down Asian markets on its knees. Another example: Brazil struggling with its own problems has not impacted India in name of BRICS. Here's Brazil market weekly chart
Now what does this mean - Indian market will move on its own logic/fundamentals. As long as Govt is serious about turnaround in economy and efforts are being made: panic sell off in Indian market looks a remote possibility. Here's Nifty daily chart
1. We must trade the market we see, not the market we want to see
2. The market is always changing and past history is not always a good guide
Please let me know your feedback on this post. I will really appreciate that. You can write to me at email@example.com or share feedback in comments section.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers