Dollar Index And Dow Technical Analysis

Dollar Index

Yesterday was an important day for the dollar as it gave up to break the 40day average and close below it. Last week i discussed why the Euro could bottom out and start its move toward 1.30, so has it? The rising euro is the clearest reason for a falling dollar. This week however I remained on watch for upside in the dollar because even as the dollar closed down last week, completing 3 waves up, wave c<a and so wave c was short.

So there is always risk of extension; that can never be ruled out. The dip in the dollar therefore can either be wave 3 down long term or an x wave within the larger counter trend move up. Supports are 93.41 at the 20wma and 92.45 at 61.8% of the rise so far. If wave 3 down starts right away then we are looking for 83.50 next. Sentiment for the dollar bulls was at 87% at the recent high but not extreme, also positions are more short than long. These were other reasons to wait. That said the bigger view is that the dollar is in a bear market so any move towards a declining trend should be taken seriously. Also weekly momentum is back above zero [see on chart] so the up cycle has done its minimum requirements.

Work with the presumption that the larger trend down has started till there is evidence otherwise. If the larger trend is down for the dollar why did commodities give up overnight? Maybe it was a knee jerk reaction or just time for a correction in all dollar assets.

DOW

Dow hourly charts indicate a 5 wave decline from the 5th wave top. The fall broke the rising channel. A brief bounce in wave 2 is all that we should get before wave 3 down.

FIIs unwind PCR and the BSE Industrials

FIIs have been unwinding their longs in the index futures segment again, and positions are now nearly back to zero. We have seen markets bottom near term from the near zero positions point recently but in 2012 after a negative divergence the positions went negative and short nifty. So this level has to be closely watched.

I noted in the LSR that Volume PCR rises during market declines as markets panic and people buy more protection, so despite the high OI in Puts there is no volume. Even in recent days we have two readings of 0.39 near the lower end of the range. Lower highs in the VPCR at market lows shows lower and lower levels of fear. So on this measure we are far from any selling climax but quite the contrary. I expect this narrow wedging pattern will break on the upside during the next market decline as volatility rises and risk perceptions go up again. The VPCR is a medium term cycle indicator. Readings above 0.7 would mark nearing a medium term bottom.

 

The Open Interest Put/Call ratio on the other hand is a directional indicator and in the short term moves up and down with the prices. So after the negative divergence with NIfty the nifty did roll over. On the 2 previous tops in Aug and Sept similar readings caused a top but the market bottomed before the indicator could go to the lower red line and be oversold. This time if we finally have a medium term top in place it should do so. As long as the PCR is trending lower it indicates a falling trend in the market

Finally the most interesting of indices are the BSE new indices. At first I did not think much of them but as I do now they have good patterns and are more broad based as well in some cases. So yesterday I discussed the BSE Finance index that has a 100 financials in it and not dominated by a few. The weekly momentum of the Finance index has been in sell mode for weeks and not whipsawed like the others. So here is the BSE Industrials index, and it has a good mix of large cap and mid cap stocks. 225 stocks in total it is quite broad based. So what do I like about it? That the chart has perfect touch points on the monthly chart for an ending pattern, and unlike the Nifty 500 the entire pattern is overlapped. Lastly wave E of the wedge is itself an ending diagonal as shown by blue lines. This index is convincing that something long term ended here.

Currency Technical Analysis

USDINR

USDINR – retraced 23.6% intraday at 65.29, and we are open to 65.12 at 38.2%, and this is wave ii of a larger move up. Once done wave iii goes to much higher levels; iii=i=66.20. We are in the second week of a 4 week cycle for rising USDINR pair, based on its typical cycle.

EURO

Euro – Wave 2 ended or is a complex pattern. So either wave 1 of 3 is forming or an x wave. 61.8% at 1.88 is the first resistance at 61.8% followed by 78.6% at 1.198. The near term trend is up for the Euro then

Commodity Technical Analysis

SUGAR CSCE

Global sugar prices are again rising. So wave 4 triangle appears ruled out. EWI was considering it and I waited for a while and now the price action of the months since July is a base triangle that is bullish. Prices are rising and a bottom may already be in place. Then we could be looking at a multi month rally in Sugar. We closed t at 15.13$ and a close above the 40 week average at 15.30 on a weekly basis would be good confirmation for a bigger move.

LEAD MCX

Most base metals are back into correction mode and the potential for a further rally appears to have deteriorated. So I was bullish on Lead and it did rally but halted at 78.6% retracement of w below and in 3 waves. So it is best marked an x wave. This takes me back to my initial thinking that the Oct top is wave 5 and we are in a more prolonged corrective phase till proven otherwise. In this case Lead could go back to 61.8% of wave 5 near the lower trendline at 147 for this expanding trading range.

ZINC MCX

Daily and weekly momentum for Zinc are in sell mode and all the moves since the Oct top are 3-3-3-3-3, and it now looks like a triangle. So resistance is at 215.80, and support at 206.50. Below 206.50  we could see a dip back to 190. Retracements are 187.25 and 180.40, at 50% and 61.8%

NICKEL MCX

Wrong, that is it, I thought wave 5 ended at a double top but then we broke out. The move to new highs ended in three waves, so it must be part of wave 5 [impulse = 5+4 waves ]. So wave 5 can now be marked at the high of 838 truncated in wave v of 5. We closed below the 20dma and can dip to 61.8% retracement at 730. If that breaks then the 20 week average is at 708.

GOLD

Gold formed a triangle and it appears to be taking support at the 1270 mark. So possible that we get a short term rally with the dollar falling. A move above 1288$ would indicate a rally to 61.8% near 1320. At this stage I still mark this as wave B and not the start of a new wave, though the long term outlook i bullish.

BSE Finance Technical Analysis

With the advent of so many indices there is always an index you will find to justify something. So while wave E has thrown over the upper line in the Nifty, I have changed it to wave 5 at the top, wave E is not ruled out on the Nifty 500 or on this new BSE Finance index with perfect touch points. Unlike the Banking index that has less than a dozen stocks in it the BSE Finance index has 100 stocks in it. So it is a better representation of the sector or industry. This is a distribution pattern with pattern implications for a move down to below the neckline equal in size to the pattern itself.

Similarly on the S&P BSE Sensex Next 50 index, with a slight throw over

So Nifty may have gone too far for E but a close below 10230 puts it inside the trendline of the previous two highs that it broke out of. Staying below 10230 therefore is a sign of failure.

USDINR, USDGBP And Euro Technical Analysis

USDINR

USDINR – has retraced 66% of the initial rally. wave I therefore think it is wave i of iii subdividing. iii=i would point to 66.45 or higher if extended. Today prices broke out of the downtrending line and closed above the 20dma so that was a positive sign.

USDGBP

USDGBP – wave iii up next points to 0.787 with support at 0.757.

EURO

The Euro hourly chart shows a flag and a-b-c rise. The structure of wave c is not clear, so it is over or a few more squiggles or attempts at the upper channel can also occur. Once we break the flag however the move should be in wave 3 down to new lows

The Euro hourly chart shows a flag and a-b-c rise. The structure of wave c is not clear, so it is over or a few more squiggles or attempts at the upper channel can also occur. Once we break the flag however the move should be in wave 3 down to new lows.

Implied Volatility Breaks Out

India VIX jumped just before markets closed. In doing so it broke out of a triangle like pattern on the daily chart shown here. The red arrows show the lowest readings on record that I highlighted into the August top. After that correction the VIX has been moving higher and not lower as the trend toward higher volatility probably gains momentum. There have been many false flags on this front so watch if this trend of a higher Volatility reading holds. A higher VIX is usually associated with falling prices.

Commodity Technical Analysis

CRUDE

Crude Oil went past the 2017 high. Here I am considering the alternate scenarios developing. We are in either wave 3 or c up. the third wave will end in 5 waves and in that sense we are only in wave iii so Oil prices have way to go. One minor correction in between the next achievable level is near 62. 62 is the 2015 high and the trendline of the two tops seen since 2016. Near 62 we can consider which is the better case, but the Oil rally that has started now has a few more legs before it is done in either case.

Aluminium MCX

Aluminium prices closed above the 20dma taking support at 139.23 and unless we close above it the immediate bearish case should be held back. The dialy momentum has crossed back to the buy side so watch if it goes past the 142.70 high we might get a new rally. The parallel channel would then have resistance at 147.50 next.

LEAD MCX

As discussed Lead prices closed up above the 20dma which was at 141.415, and pushed the daily momentum into buy mode. 167.50 is the Upper bollinger band and next resistance.

NICKEL MCX

Nickel broke past the 785 mark to new highs causing extentions in what I thought to be a near double top. Implications are here. III=I points to 873, however the big jump in one day is wave i of III and iii=i points all the way to 910.

Gold

Gold spot closed just below the 20dma at 1281.50 and did not break the 1284.10 swing high. Both keep in tact the wave count that wave C down is unfolding. Below 1263 we head toward the 1200 mark

SILVER MCX

Silver had a bump up yesterday, that should be wave ii of c. Wave c will develop into a 5 wave decline and wave iii of c down should be next 61.8% retracement is at 39928, from where wave iii down can start. iii should head towards 37500, as it may extend up to 1.618 times wave i.

SUGAR NCDEX

Covering Sugar Ncdex after long [Rs./Quintal] and using a line chart. Why? the contract has suddenly become very illiquid. It has also not declined along with Global sugar prices. It did rise with them and traded a lot last year. Am not sure what has happened but now on many days there are no trades and the price is erratic. One day it was up from 3300 to 3700 and now on 30/10 it is back at 3310 on a single trade and has not traded for days. C=A is achieved [near the wave 4 support] but hard to say if this erratic structure is complete. So we need to watch prices in light of global prices for a while and see what happens.

RAPESEED

Rapeseed is rising and might continue to. Taking support at the longer term channel support prices are rising. Retracement levels are 4100, 4300 and 4500. 3830 is the 40dema and the immediate support holding which we are heading to higher retracements.

SOYBEAN QUITAL

Soy Bean Ncdex rallied in wave 1 and wave 2 maybe complete in A-B-C. If the recent low of 2754 holds we could be in wave 3 up and that would initially retrace 61.8% at 3080, and if that is surpassed then 3=1 could be the bigger picture near 3424. We have closed above the 20dma at 2870

CRB Index Technical Analysis Report

CRB Index

The CRB index went past the Sept high due to the recent rally in crude prices. For a while I have maintained that crude will see a dip before a rally. The dip did not last but the new highs are now causing metals to resume the rally. The question on the back of the mind is whether the larger wave C/3 rally has started already?. Crude did not look impulsive in the initial phase of the move up but was making higher tops and bottoms. So that takes me to the CRB index that has a different look. This index has 2 clear 5 wave rallies that I interpreted as a-b-c and was expecting a dip but with the hights taken out the bullish alternate is to consider 1-2-1-2-3 as an alternate which means that there is a lot more steam in the CRB commodity index and thus the whole space. The base metal prices after the recent correction have started giving buy signals again so clearly something else could be at work. The bull run in metals may resume again as prices take off to new territory. Have covered Lead today but will cover the others like Aluminium and Nickel that are showing possible bullish outcomes. Copper is lagging behind as usual along with Zinc. Gold and Silver often work opposite to the base metals but eventually catch up so for now they are still correcting. The daily chart of the CRB index parallel channel now goes to 200 as the next potential target.

Now you should also appreciate the big picture. The CRB index in wave 2 dipped to a 70.7% retracement. If wave 3 has started it should go to the upper end of its channel but may also test the falling trendline from the 2008 high. While most people cannot imagine a bull market in commodities coming back, with the bear market in the dollar this is exactly what you might get. So expect targets on the upside to overshoot in commodities. This will have a direct bearing on commodities prices. I will not be surprised if the falling trendline is eventually surpassed. The reasons are a combination of coming supply tightness and the other purely past monetary actions. Both have been overlooked by the markets due to the crash in prices in the wake of the rising dollar despite years of growth in GDP and expansionary policy. The big turn might have started sooner than most are expecting.