Stocks
This week will be a test of our hypothesis that most Equity indices could bounce from Supports. Within this, the Shanghai and the Nifty-Sensex combined look bearish in the near term.
For now, although the Dow (24285.95, -178.74) has closed low, the mentioned Support at 24250-200 has held. Even 24000 could produce the expected bounce towards 25500+. At the same time, we have to be prepared for bearishness on a break below 24000. Some dovishness from the Fed, on the back of the plunge in Crude, could be the positive trigger the market is waiting for.
The mentioned Support at 11000 on the DAX (11192.69, +54.20) is holding so far. we have to now see if a proper bounce that breaks above 11350 materializes or not.
There is a bit of similarity in the charts of the Dow and the Nikkei (21740, +0.44%). Contrary to expectation, it did not dip to Support at 21200 on Friday and in fact trades a little higher today. A rise past 21800, if seen, could be bullish in fact.
The Shanghai (2582, +0.11%) saw a sharp fall on Friday as the Resistance at 2700 is holding well. It might be a loss leader in the near term and maybe we have to be prepared for a fall towards 2550 or even 2400.
The Nifty (10526.75, -73.30, -0.69%) and Sensex (34981.02, -218.78, -0.62%) had fallen on Thursday, in line with near-term bearishness. Today’s action, after the large decline in Crude on Friday, will be important. Failure to rally could accentuate near-term bearishness.
COMMODITIES
Brent (59.38) and WTI (50.67) have seen sharp plunge on Friday. Brent is trading below 60 and is likely to test 56 in the near term before bouncing back towards 60-62 in the medium term. The 200-MA on the weekly line chart near 56 could provide some support to Brent and push it higher within the next few sessions.
WTI, has support near 47.5 on the daily line chart and could hold in the near term producing a decent bounce.
Brent-WTI spread (8.50) has bounced a bit from 8.21 and could move up towards 9.0-9.2 before attempting a fall back towards 7.75 or even lower in the medium term. A falling spread would indicate some more weakness for the crude prices.
Gold (1223.80) is holding below the immediate resistance at 1230 and while that holds, there is scope of another fall towards 1210-1205 in the near term. Gold could possibly take some time, say a week or two to be able to break above the 1230 resistance and move higher. It looks bearish for this week while the dip continues.
Silver (14.27) has fallen from 14.5 and could test support near 13.80-14.00 in the next few sessions before again bouncing back towards daily horizontal trend resistance at 15.
Copper (2.76) is also facing rejection near 2.80 and while that holds, a decline to support at 2.65 is likely. Overall the price is stuck in the 2.65-2.85 region and needs to break on either side to decide further direction. Before that the price is likely to remain ranged in the said region for another 1-2 weeks.
FOREX
Dollar Index (97.03) has bounced after testing support near 96 last week. It could now rise towards resistance on daily line chart near 97.5 in the current week.
Euro (1.1330, -0.05%) is trading within important support and resistance levels of 1.12 and 1.15. The 8-MA on the 3-day line chart seems to be holding just now and could push Euro towards 1.130-1.1280 in the near term. Thereafter the rate could move up towards 1.15 gradually.
112.25-112.50 seems to be near term support for Dollar Yen (113.23, +0.24%) just now from where a bounce has taken place. While the pair remains above 113, there is scope of testing 113.50-114.0 on the upside soon. In the longer run, we could see an eventual fall back to 112 as long term resistance at 114 may not easily give up.
Euro-Yen (128.32, +0.18): While below resistance near 128.75, Euro-Yen could fall towards support on daily and 3 day candles near 127.5 in this week.
Pound (1.2800)is likely to test support on daily candles near 1.275 in the next couple of sessions. Broad ranging between 1.30-1.27 might still continue for 1-2 weeks.
Aussie (0.7236) might get some support near the 21 days MA (0.7225) in the next 1-2 sessions. However, looking at weekly candles, preference is for it to move lower in this week towards 0.719.
Sharp fall in Brent Crude on Thursday and Friday last week seems to continue, taking the price to levels below 60. This is crucial and could lead to a sharp gap down opening in Dollar Rupee (70.69) today near 70.40/20 region. The correlation between Dollar Rupee and Brent crude is high currently and stable Crude is needed to prevent further strength for the Rupee in the near term. A break below 70.20 if seen today could take it down further below 70 this week aided by the falling crude.
INTEREST RATES
The sharp decline in Crude last week, has pulled US yields a little lower, but Supports have not been broken yet. For instance, the US 10Yr (3.04-05%), dipped a bit compared to 3.06% on Thursday, but remains above the crucial Support at 3.00% for now. The US 2Yr (2.82%) also remains above the crucial Support at 2.80%. It will be interesting to see if these continue to hold this week, or if they produce a bounce. Perhaps the market might want to wait see the US Q3 GDP (Preliminary) number on Wednesday before taking a call. A hitherto absent dovish comment from the Fed (if it comes at all) could trigger a break of the Supports. Else, we may see Yields move up in the coming days.
The US 10-2Yr Spread (0.22%) also needs to rise past 0.30% to give greater credence to our preferred Curve-steepening.
The German-US 10Yr Spread (-2.70%) has dipped a bit compared to -2.68% on Thursday. Similarly, the German-US 2Yr Spread (-3.40%) also traded 1bp lower on Friday compared to -3.49%. The German 2Yr (-0.576%) has earlier bounced a bit from Support at -0.62%. We need to see if the German 30Yr (0.995%) and 10Yr (0.344%) bounce from Supports at 0.98% and 0.30% respectively or not.
In India, the 10Yr GOI (7.7097%) had already broken below 7.75% on Thursday. It may now well be expected to fall below 7.7% towards 7.65% and 7.60% in the coming days/ weeks.
