STOCKS
We were a little cautious yesterday, but Equities continue to be bullish. Now, only the Shanghai remains a bit of a concern in the medium term.
Solid rally in the Dow (25366.43, +617.70, +2.50%), as the market interpreted Powell’s speech yesterday (see Interest Rates below) as dovish on balance. The Dow showed muscle and rose well past 25000. It can well target 25750 now.
Earlier in the day, the DAX (11298.88, -0.09%) opened higher near 11355 but gave back the gains to close marginally lower. Perhaps it needs to spend some “sideways time” between 11200-400 before it fulfills its longer term bullish potential for 11600+.
As mentioned once earlier, the Nikkei (22350, +0.73% over yesterday’s close of 22177) resembles the Dow Jones chart and is potentially bullish in the longer term, but needs to break above 22500 to confirm.
Although the Shanghai (2601, +27.06, +1.05%) managed a respectable rally rally yesterday after days of losses coming down from 2700, and can also move up to 2650-75 in the near term, its longer term trend remains bearish while below 2675.
Belying our caution, the Nifty (10728.85, +43.25, +0.40%) moved up yesterday. It is quoting higher near 10825 on the SGX today and may test Resistance at 11000 in the next few days. The Sensex (35716.95, +0.57%) too rose past 35500 and may now move up to test 36350.
COMMODITIES
Crude prices started falling yesterday after the EIA reported an addition to the crude oil inventories for the week ended 23rd Nov by 3.6mln barrels.
Brent (58.88) and WTI (50.59) have dipped from levels seen yesterday. The fall in crude prices does not seem to have ended yet. Brent has room on the downside towards 58-56 while WTI can test 47.50 in the near term.
Brent –WTI spread (8.29) has come off from levels near 8.5 and could now be headed towards 7 while the crude prices fall.
Gold (1229.10) has risen sharply to re-test 1230 on the upside. A break above 1230 is needed to take the price higher towards 1240/50 in the near term. We could soon see a break above 1230 as the movement in the 1210-1230 region seems to be in a contraction mode.
Silver (14.43) has also moved up and if the rise continues to take the price above 14.50, it could head towards upper resistance near 15.
Copper (2.7980) has moved up from 2.70 in spite of having some more room on the downside towards 2.65. A rise back towards 2.85 looks possible in the next 2-3 sessions.
FOREX
Watch immediate resistances near 1.14 and 1.285 and higher resistances near 1.15 and 1.295 on Euro and Pound respectively. USDINR could meanwhile test 70.30/20 on the downside.
Dollar Index (96.79) could fall more towards support on daily candles at 96.50 by early next week. If it breaks below 96.50 as well, then it could move further down towards lower support on daily line chart at 96.
Euro (1.1374) broke above 1.135 yesterday and now faces resistance at 1.14 on daily candles. If it breaks above 1.14, it could move further up towards higher resistance at 1.15 on weekly candles in the next couple of weeks.
Dollar Yen (113.42) tested resistance near 114.04 on daily candles yesterday and has now come off from there. It could now move lower towards 113 early next week (113 is seen as support on daily candles).
Pound (1.2831) has immediate resistance at 1.285 on daily candles. If it breaks above this level, it could then move up till higher resistance near 1.295 on 3 day candles. It would be crucial to see whether it closes below 1.280-281 today – a close below that level would be a bearish indicator for the near term.
Aussie (0.7298) tested resistance at 0.7328 on daily candles yesterday and is now dipping from there. It could possibly fall a bit more early next week towards support near 0.723-0.725 on daily candles and then again rise from there.
Euro-Yen (128.97) broke above immediate resistance at 128.75 on daily candles yesterday. The 21 weeks MA at 129.32 could possibly provide some resistance and it would be important to see where it closes today with respect to the 21 weeks MA. If Dollar Yen falls towards 113 and Euro breaks past 1.14 to target 1.15 in the next week, we could then see Euro Yen targeting levels near 130.
Dollar Rupee (70.625; current offshore NDF: 70.40) could test 70.30/20 on the downside while upside could be capped at 71.00/10 in the next few sessions.
INTEREST RATES
Powell said that rates are just below neutral, that the policy path is not pre-fixed and that the Fed is data sensitive. This was interpreted as dovish, on balance, by the markets.
Funnily, though, the US 2Yr (2.81%) is still trading above crucial Support at 2.80%. Likewise, the US 10Yr (3.06%) is also not breaking below crucial Support in the 3.05-3.00% region immediately. Importantly, the 10-2 Spread moved up to 25bp from 22bp earlier. The BIG thing would be a rise above 28-30bp, if seen at all.
But, if stocks can rise and Crude can fall even as the US 2Yr remains above 2.80%, why should we cavil?
The 10Yr GOI (7.6438%) yesterday, in line with our preference for a dip to 7.70-7.65-7.60%. It can dip some more as well, but we would have to be cautious about Support in the 7.60-55% region holding up in the near term.
