STOCKS
Complete panic selling all over the equities and it brings back 2008 and even the Asian crisis and the LTCM breakdown of 1998 in to the memory. While the DAX and Nikkei look vulenerable for more fall from current levels, indices like the Dow, Nifty and Sensex are coming closer to their key long-term supports. While the danger of breaking these supports cannot be ruled out (less preferred), we would prefer to see this as a good buying opportunity on the Dow, Nifty and Sensex rather than becoming more panic.
As feared yesterday the fall in the Dow (21200.62, −2352.60, -9.99%) has extended below 22000 and is heading towards 21000. A crucial long-term support is coming in the 20900-20800 region which we prefer to hold and produce a bounce. But in case if the panic selling continues, then we will have to look for a test of 18500-18000 on a strong break below 20800. However, in this 21000-18000 zone we will prefer to remain at the long side of the market rather than becoming more panic.
Similarly, DAX (9161.13, −1277.55, -12.24%) has tumbled below the crucial 10000-9900 support and is heading to test 9000. There is a danger of this fall extending further towards 8350-8150 after which a corrective rally is possible.
Nikkei (17081.14, −1478.49, -7.97%) has declined below the key 18000-17780 support zone. As mentioned yesterday, the break below 17780 will now have opened doors for a test of 16000-15700 on the downside.
Shanghai (2833.13, −90.36, -3.09%) has declined below 2850 and can fall to 2750-2730 on a further break below 2800 from where a bounce is possible.
Nifty (9590.15, −868.25, -8.30%) and Sensex (32778.14, −2919.26, -8.18%) are in danger today of breaking below their crucial support levels of 9000 and 31000 respectively. In such a scenario Nifty can test 8700 initially and then even 8000 (if the sell-off worsens). Sensex on the other hand, can then target 30000 and even 28000. We will have to wait and watch for the price action today.
COMMODITIES
Commodities give bearish signal for the near term after sharp fall breaking below immediate crucial supports that we have been mentioning in the past few editions. Crude and copper prices trade lower but while crude could see some sideways trade, copper can turn bearish if it breaks below crucial support at 2.40-2.35. Precious metals have declined sharply breaking below interim supports and could indicate further bearishness in the near term.
Brent (32.58) and Nymex WTI (30.77) trade lower. We would continue to watch price action near support levels of $30 on both. Brent is not expected to fall below $30 and could gradually move up towards $35 or higher in the upcoming sessions. Some range trade below $35 looks possible for now. WTI on the other hand could be ranged near $30-27.
Gold (1552.90) that usually acts as a safe haven in times of panic finally succumbed to weakness in other asset classes falling sharply below immediate support near 1590/80. While the fall sustains, we may expect prices to test 1480/60 levels before attempting a bounce from there. An immediate rise back to levels above 1590 is needed to keep any hopes of bullishness intact.
Surprisingly Silver ( 15.42) has also fallen sharply breaking below support mentioned near 16 yesterday. A test of 14.5-14.00 looks possible in the near term before a bounce is seen. View is bearish while below 16.
Copper (2.4095) is trading below crucial medium term support near 2.40-2.35 which of holds could produce a bounce back to higher levels in the near term. Failure to bounce from 2.35 would indicate medium term bearishness towards 2.20-2.00 for the coming weeks. We would watch price action near 2.35/40 in the near term.
FOREX
Dollar Index trades higher while Euro is headed towards support near 1.1150. Dollar Yen has bounced a bit and while Dollar Index remains high and Gold continues to fall, we may see some recovery in Dollar Yen. Pound has declined sharply and looks bearish. Yuan and Rupee may weaken today. While supports/resistances are holding well on some currencies there could be more volatility coming in on the others like the Pound or Rupee. We would have to wait and watch for some more clarity.
Dollar Index (97.42) has risen as medium term support near 95 seems to be holding well. A test of 98.50 could be on the cards for the near term.
Euro (1.1198) could face some support near 1.1150 in the near term but we would see a close watch on the Dollar Index which if moves up above 98 could trigger a sharper fall in Euro below 1.1150.
Dollar-Yen (104.97) could rise towards 105-106 in the near term.
EURJPY (117.59) has immediate support near 116 which needs to hold in order to make the cross bullish towards 118-120 in the near to medium term. For now we may expect some trade in the 116-118 region.
Aussie (0.6291) has fallen below 0.65 and has turned bearish towards 0.60-0.55 that could be tested in the coming weeks before a bounce back is seen. The downtrend that started in 2011 is expected to come to an end anywhere between 0.60-0.55. Near term looks bearish with interim corrective bounces.
Pound (1.2527) has broken below 1.28 after FED added liquidity. Volatility could be high and Pound is likely to remain weak against other currencies as Pound is seen to be sold against the Euro, Dollar and the others. Either 1.25 could hold just now to produce a bounce or we may see further fall to 1.20. Watch price action near 1.25.
USDCNY (7.0063) has risen as expected but could be limited to 7.03 on the upside for the near term before a fall is seen again.
USDINR (74.2250) is likely to rise today after the RBI announced a 6-month US dollar sell/buy swaps to provide liquidity to the foreign exchange market. We would have to see if the rise is curbed at 74.48 mentioned yesterday or the RBI allows for further Rupee weakness in the near term. Watch price action near 74.48.
INTEREST RATES
Series of stimulus of announcements from the central banks yesterday. India’s RBI announced a Dollar Sell/Buy swap for $ 2bln to increase the supply of Dollars in the market. The European Central Bank left the rates unchanged as against the market expectation for a 10bps rate cut. However, the central bank increased the quantum of its asset purchase by 120 billion Euros. The US Federal Reserve announced to pump-in $1.5 trillion by increasing its asset purchase program. We will have to wait and watch if these stimulus measures can reduce the panic in the market. The Treasury yields have moved up for the second consecutive day remaining insulated from the sell-off in the equity segment and have room for further rise as mentioned yesterday. The German Yields remain mixed. They can see some uptick in the near-term before reversing lower again. The 10Yr GoI has risen sharply yesterday. It can move further higher to test its key resistances and then can reverse lower again.
The US 2Yr (0.46%) and 5Yr (0.58%), 10Yr (0.76%) and 30Yr (1.43%) yields have risen further across tenors. As we have been mentioning over the last couple of days a test of 1%-1.2% on the 10Yr and 1.5% on the 30Yr is happening (though at a much faster pace than anticipated) in line with our expectation. However, it will have to be seen if the yields can breach 1.2% (10Yr) and 1.5% (30Yr) eventually. At the moment we expect the upside to be capped at 1.2% (10Yr) and 1.5% (30Yr) and a reversal is possible again.
The German 2Yr (-0.97%), 10Yr (-0.75%) and 30Yr (-0.43%) Yields remained lower but stable while the 5Yr (-0.89%) has inched slightly higher from the levels seen in the morning yesterday. The view remains the same. The 10Yr can rise to -0.60% in the short-term while it sustains above -0.83%. The 30Yr on the other hand need to breach -0.38% to move further higher and avoid a fresh fall to -0.50%. We will have to wait and watch.
The 10Yr GoI (6.2365%) has surged breaking above 6.20% (the resistance which we had expected to hold). While above 6.20%, a further rise to 6.27% and even 6.35% is possible after which we can see a reversal.
