On April 10, the Nifty could have begun a new super cycle which could run to 2025, says Sonali Ranade
The ECB delivered a rate cut on Friday that saw the DAX rally to make new high on the rebound from its 200 DMA. With that new high, DAX signalled it might still have some steam left in it. The US markets were quick to follow suit. Russell 200, Nasdaq100 and S&P500 all made new highs and indicated that they may have another leg to their respective rallies.
The rate cut saw commodities rally in reflex. However, the mighty dollar indicated it might have completed its correction and is ready to resume its rally. The commodity markets may not have completed their correction just as yet. Cheaper commodities could lend strength to equity markets going forward.
The Nifty may have ended its correction for the 2007 bull market at 5477.20 on April 10. If my analysis is correct, with that low, the Nifty could have begun a new super cycle, which could run to 2025. It promises to be a very volatile one. Confirmation will only come with a new high on the Nifty and that could take months.
Those who didn’t buy the lows as I advocated should buy this rally on consolidation above 6100. There is no need to chase stocks. The market abounds with blue chips that have just completed their multi-year corrections. I prefer to buy these, rather than stocks in fancy, because with good managements and strong balance sheets, these blue chips capture any uptick in the economy much before others. And offer far higher risk adjusted returns than others when bought at cyclical lows.
Avoid the crowded trade.
Gold: Gold closed the week at $1467, just under its overhead resistance in the $1480-1490 region. The metal has spent most of the last two weeks working off the oversold conditions caused by the crash in price from 1550 to 1320. The metal may continue to consolidate just below 1490 for a while more before moving down to retest the $1320 floor. Note a move to $1550, though unlikely, is possible without signalling the end of the long-term bearish trend in gold.
Silver: Silver closed the week at $24.07. Like gold, silver has spent the last two weeks working off oversold conditions. Expect silver to resume its downtrend and move towards $20 in the next 2 to 3 weeks.
HG Copper: Copper closed the week at 3.3145. With the second successful test of 3.04 during the week, copper may have completed the current leg of its correction. After a short consolidation below its overhead resistance of 3.3, it could move up to test its 200 DMA at 3.50.
WTI Crude: Crude closed the week $95.61. Crude’s volatility is simply unbelievable. It has been moving from one extreme of its trading range to the other at the drop of a hat. To my mind, extreme volatility like the one we are seeing in crude, implies a change in long-term trend that is widely disbelieved in the market.
The idea of peak oil still has much appeal. Nevertheless, the wave counts and major trends suggest that crude remains bearish. Over the next week, however, crude retest its overhead resistance at $98 and hover there for a while before moving lower.
US Dollar: The DXY closed the week at 82.195 after making a low of 81.52 during the week. With the retest of floor at 81.80 the correction in DXY is over and we can expect the move towards 83.50 to unfold shortly. Maintain my view that the long-term bullish trend in DXY will see it retest 84.25 by end of July.
EURUSD: The EURUSD closed the week at 1.3111 after retesting its recent top at 1.32. In terms of wave counts the counter-trend rally from 1.2780 to 1.3242 may be over. The pair’s 50 DMA is just a wee bit above its 200 DMA that will trigger a sell signal. Maintain my view that EURUSD will maintain its bearish journey to the 1.27 region over the next two months.
USDJPY: The USDJPY closed the week at 99.02 after making a low of 97 during the week. In terms of wave counts, the currency may be heading for a triple-top at just under 100. Unless the pair makes a new high soon, the bull run by the pair will have run out of Abe’s fuel.
USDINR: The dollar closed the week at INR 53.8 after having made a low of 53.63 during the week. The dollar can test INR 53 floor over the next few days before heading up towards INR 55 in a counter-trend rally. Expect a largely sideways movement of the dollar in the rupee market to persist for a few months more.
DAX: The DAX made a new high of 8130.16 during the week closing at 8122.29. Note the current rally comes off the index’s 200 DMA from the 7400 region, which was reached after a five-part impulse wave down! In the short, the DAX attracts more support on a reactive move up [short-covering] than on an impulse wave down.
The DAX may now have extended its rally much like the US markets by another leg. Expect the DAX to consolidate above 8100 before moving up. A drop below 7850 negates this view.
Russell 2000: The Russell 2000 pulled off a feat similar to that of the DAX. The only surprise was that the bounce came from 895 instead of the 200 DMA at 855. Note, the breakout above 954 needs confirmation. If confirmed, the US midcap space can now extend its rally to mid-July. Watch for consolidation above 894. Stop loss should now be just below 890.
NASDAQ100: The Nasdaq100 resolved the massive inverted SHS on its weekly charts by the most emphatic method known -- making a new high with a huge gap up. Pity the bears! The index closed the week at 2944.59. Upon consolidation above 2877, the index gives itself a new leg to the rally that can extend into the first week of August. Stop loss is now 2800.
S&P500: The SPX closed the week at 1614.42 after making a new high of 1618.46. The index surprised by bouncing from 1530 instead of testing 1490. If the new high is confirmed as a breakout on testing 1598 from the topside, the SPX’s rally can now extend to mid-August. The target could be as high as 1700. Stop loss now should be 1530.
NSE NIFTY: The final correction in the NIFTY for the excesses of 2007 may have ended at the low of 5477.20 on April 10. That means we are now into a new super-cycle for the NIFTY and it will span eight-10 years and may well be more tumultuous than any we have seen before. For the next week, expect a break above 6100 before a bit of consolidation above that level which will confirm the beginning of a new bullish rally.
As I have stressed before, Indian markets don’t usually give investors a second chance at either buying or selling in individual stocks. This is one of those rare occasions when the index itself has raced away before reconfirming a bottom. A retest will come of course. But that may be months away. Those who haven’t bought the lows in individual stocks should look to dips to buy.
NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.
Sonali Ranade is a trader in the international markets
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