STOCKS
There was minor profit-taking in some indices yesterday, but most were not very bearish either. The overall feel from the charts is that there is a bit of indecision in the markets with both bulls and bears not sure of themselves in the short term.
For instance, the Dow (25461.70, +190.87, +0.76%) surprised by actually going up, but it needs to be seen whether it will sustain and build on the gains. If it does, it could lead other markets higher as well. Although the DAX (11495, -0.21%) closed lower yesterday, and could fall towards 11000 in the coming days, it has important long-term Support at that level. So, it could be near-term bearish and long-term bullish.
On the other hand, in Asia, we note that although the KOSPI (2083.98, +0.38%) trades a little higher today, it could take a bearish turn unless it rises past 2120 (21-day MA) at least. Also, the Shanghai (2665.43, -0.41%) has long-term Resistance at 2700-50, or maybe even at current levels. Stronger Resistance seen at 2800 as well. So, the Shanghai might remain longer term bearish while below 2750-2800. The Nikkei (22113, +0.97%) had come down yesterday but is trading higher today. It will become bullish in case it manages to rise past 22400 and bearish if it happens to fall below 21200.
In India, the Nifty (10524) and Sensex (34951) were a little mixed yesterday. They may have near-term bullishness towards 10700 and 35500 respectively while above 34500 and 11200 respectively.
All in all, maybe Equities are trying to recover from the October decline. We are unable to be sure whether this is a mere “bear market rally” or a good buying opportunity for the long-term.
COMMODITIES
Brent (72.92) has important resistance near 74.0-74.2 which it tested yesterday. Only on a decisive break above 74.2 will the downside towards 71.70-70.30 be negated.
WTI (62.97) also has important resistances at 64 and then at 65. While below these levels, the chances of a fall to support on 3 day line chart near 60 in the next couple of weeks looks strong.
Gold (1232) might just fall towards support near 1225 in the next 2-3 sessions before it again moves up higher, possibly targeting resistance near 1250 over the next couple of weeks.
Copper (2.755) has fallen back below 2.80 and could now fall further towards 2.70 in this week. Over the next couple of weeks, a gradual fall towards 2.65 now looks more likely.
FOREX
With the US midterm election results tomorrow and FOMC on 8th Nov, we could expect some volatility in this week. Watch 1.145, 1.32 and 0.73 on Euro, Pound and Aussie. USDINR’s might not break below 72.44 in the near term.
Euro (1.1409) did fall to 1.135 yesterday as per our expectation, but then, rose again close to resistance near 1.1430 on daily candles. It seems that the markets might be waiting for the FOMC on 8th Nov and the US midterm election results over the next 2 days, before a decisive move is seen. As per the charts, there is strong resistance for the Euro in the 1.1425-1.1450 zone, which should continue to hold in the near term, taking it back towards 1.13.
Dollar Index (96.33) – Immediate support in the 96.30-96.00 zone continues to look strong for the Dollar Index – in fact, lower down, there is support near 95.50-70 as well. Preference continues to be for these supports to hold in the near term. Watch out for the US midterm election results and FOMC meet.
Dollar Yen (113.26) is continuing to stay above immediate support at 113. Preference is for a rise towards 114.0-114.5 by next week. A break below 112.75-50 would be required in the next couple of weeks to negate chances of another rise to 114 and beyond.
Euro-Yen (129.24): As Dollar Yen rises towards 114.0-114.5 while Euro stays below 1.1425, the upside for Euro Yen in the next couple of weeks should be capped below 130-131. Resistance is seen near 131 on 3 day line chart – so, a rise towards 130-131 by next week could take place, after which it could come off from there.
Pound (1.3061) has crucial resistance on weekly candles at 1.31. On daily candles, some scope is seen for a rise towards 1.3175-1.3200 in this week – we can allow for this rise but ultimately we need to see where it closes the week – a week close above 1.304 (21 weeks MA) would be bullish. Currently, our preference is for Pound to come off from 1.31-1.32.
Aussie (0.7210) : We need to watch if Aussie closes the week above the 21 weeks MA (0.7268) or not. On daily candles, there is crucial horizontal resistance near 0.73 as well – we can allow for a test of this level too, but preference is for it to come off from there, if not from lower levels itself.
Dollar Rupee (73.135) – Possibility of downside below 72.44 in the near term has greatly reduced. A rise towards 73.30-50 could take place in this week. Immediate support at 72.70-60 expected to hold.
INTEREST RATES
US Employment data had come in very strong on Friday. Average Hourly Earnings had accelerated to 3.14% Y/y growth while the nonfarm payrolls showed an increase by 250,000 (well over the expected 190,000). This suggests increased tightness in the US labour market and makes a rate hike in December a near-certainty.
This has led to an increase in US yields. The markets now await the US midterm election results tomorrow and the FOMC on the 8th – in this context it will be very important to watch a crucial resistance level on the US 10 year yield in this week (given below).
The US 10 year bond yield (3.20%) looks set to rise towards resistance near 3.25%-3.26% – it will be important to see if it breaches above this resistance or not – if that happens, it could become quickly bullish towards 3.40%. Let’s wait and watch for the FOMC on 8th Nov.
As mentioned yesterday, The German 10Yr (0.43%) and the Japanese 10Yr (0.13%) also look like they can move up a bit towards 0.53% and 0.16% respectively.
However, the German-US 10Yr Spread (-2.77%) is at a crucial Support within an overall strong downtrend. We need to see if there is a bit of a bounce from here, or whether the Support is broken. Resistance for the US-Japan 10 year yield spread (3.07%) could be slightly above current levels near 3.15%.
