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Djvu
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- Investing style - pure value driven with minimum target returns of 2x in < 1 or max 2 years with lowest possible risk to reward ratio. - Trading Style - My trading bias is mostly only on the short side . i.e buying puts,shorting calls. - Market focus - investing in Indian stocks and... More
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Saanpaurseedi aka Snakes and Ladders
  • Is this the Begining of the end of the Bull Market? 5 comments
    May 5, 2010 9:35 PM | about stocks: SPY, AAXJ, EWZ, HSXUF, CNY, AGEM, IFN, EPI, FXI, PGJ, UUP, ERO, DAX, EWQ, EWG, EWH, OIL

    The aim of this post is to take a technical view of the Global Markets and estimate how far markets can fall and if this correction extends into a bigger correction, taking us into bear market territory ( i.e below 200 DMA)

    Summary

    1.       Some key Global Markets are already below 200 DMA

     Chinese &  Hong Kong stock markets

     Brazil & France indices

    (–  I haven’t taken other markets like PIIGs are most of them have already fallen 20% or so and are already in bear market territory)

    2.       Most other markets like Germany, India , UK – are barely ( 2% to 4%) above their 200 DMAs.

    3.       Mean reversion also shows markets eventually revert to their 200 DMA and even go below it after extended periods of remaining above 200 DMA. I had done a study on India`s NIFTY Index titled "Timing Exit from a Bull Market

    4.        Most Global markets have retraced 2/3rd of their fall and are facing significant resistance and typically after meeting such resistance, the next logical support becomes  50% retracement level.

    1. Such a retracement will lead to most global markets going below their 200 DMA. 200 trading days would mean last month being mid July 2009 ( lower levels) and as we move ahead in time , the 200 DMA will rise at a faster pace as lower levels of last years are taken off.
     ---------------------------------------------------------------------------------------------
    1) USD  vs EURO – USD very firmly in bullish territory - crossed above 200 DMA at 1.429 ~4 months ago on 18th Jan 2010
    Earliest bearish signal of impending structural EURO weakness ( PIIGS) and potential impact of carry trades on stock and commodity markets.
    USD vs EURO - 18-Jan-2010 when EURO broke below its 200 DMA
     
    USD vs EURO – 18-Jan-2010 to till date

     ---------------------------------------------------------------------------------------------
    2) Shanghai Composite – The other early bearish signal since Feb`10 and Mid-Apr`10 –when index broke below 200 DMA.
     
     Why we should watch China ? Chinese govt. gave the mother of all stimulus packages providing new loans of over $ 1.2 trillion or 25-30% of GDP in 8 months in end of 2008. Chinese market was the earliest to cross bull market territory- crossed above 200 DMA on 5-Jun-2009. Most other global markets followed months later such as US S&P 500 crossed 200 DMA only on 15-Jul-2009, at least a month later.
    So China clearly lead the global stock and commodities rally.
    Shanghai Composite –Cmp -2857 ( or 8% below 200 DMA)
    50 DMA - 3042
    200 DMA - 3090
    Next Fibonacci support – 24% retracement at  2713 or 5% lower
     

    All time high      5903
    All time Low      1728
    Range   4175
    Fibonacci Resistance Levels       
    24%        2,713
    38%        3,315
    50%        3,816
    62%        4,317
      ---------------------------------------------------------------------------------------------
    Crude Oil – Retraced from 50% Fibonacci retracement Resistance level at 90. Next support at 76- that also happens to be both 200 DMA and 38% Fibonacci retracement level.
    At cmp , crude oil is just 4.5% above its 200 DMA

    All time high      148
    All time Low      33
    Range   115
    Fibonacci Resistance Levels       
    24%        60.14
    38%        76.70
    50%        90.50
      ---------------------------------------------------------------------------------------------
    HongKong`s HANG SENG Index
    Cmp 20,327  ( or 4% below 200 DMA)
    50 DMA – 21,186
    200 DMA – 21,161
    Next Fibonacci support – 38% retracement at  18,969 or 7% lower

     
    All time high      30468
    All time Low      11921
    Range   18547
    Fibonacci Resistance Levels       
    24%        16,298
    38%        18,969
    50%        21,195
     ---------------------------------------------------------------------------------------------
    S&P 500
    Cmp 1165 ( 6.4% above 200 DMA)
    50 DMA 1170
    200 DMA 1095
    Next Fibonacci support – 50% retracement at  1123 or 4% lower

    All time high      1562
    All time Low      683
    Range   879
    Fibonacci Resistance Levels       
    24%        890
    38%        1,017
    50%        1,123
    62%        1,228
      ---------------------------------------------------------------------------------------------
    FTSE
    Cmp  5341 ( just 2% above 200 DMA)
    200 DMA -5230
    Next Fibonacci support – 50% retracement at 5130 or 4% lower.
     
    All time high       6730
    All time Low       3530
    Range   3200
    Fibonacci Resistance Levels        
    24%        4,285
    38%        4,746
    50%        5,130
    62%        5,514
      ---------------------------------------------------------------------------------------------
    French Index CAC
    Cmp 3636 ( 4% below 200 DMA)
    50 DMA - 3915
    200 DMA - 3780
    Next Fibonacci support –24% retracement at  3510 or 3.5% lower
     

    All time high      6117
    All time Low      2705
    Range   3412
    Fibonacci Resistance Levels       
    24%        3,510
    38%        4,002
    50%        4,411
    62%        4,820
      ---------------------------------------------------------------------------------------------
    German Index DAX
    Cmp 5958 ( just 4% above 200 DMA)
    50 DMA – 6045
    200 DMA - 5736
    Next Fibonacci support – 50% retracement at   5867 or 2% lower
     

     
    All time high      8067
    All time Low      3666
    Range   4401
    Fibonacci Resistance Levels       
    24%        4,705
    38%        5,338
    50%        5,867
    62%        6,395
     ---------------------------------------------------------------------------------------------
    Brazil Bovespa ETF
    Cmp 67.2 ( 3% below 200 DMA )
    50 DMA – 72.42
    200 DMA – 68.9
    Next Fibonacci support – 38% retracement at  60 or 11% lower
     

      
    All time high      99.24
    All time Low      35.16
    Range   64.08
    Fibonacci Resistance Levels       
    24%        50
    38%        60
    50%        67
    62%        75




    Disclosure: Short : India NIFTY 50 Index
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Comments (5)
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  • Djvu,
    thank you for your intense statistical work.
    It is very interesting you calculation march in different markets. The consistency is remarkable

     

    I like to ask you some questions
    1) how can you calculate the fibonacci ratios and 2)what is the interpretation of them. I missed that class.
    3) how far markets can fall and
    4) your conclusions!!!

     

    For future articles to be more descriptive, because the information you produce is very interesting to analyze correctly and it looks like that I like to interprete it clearly. Please, keep in mind that not everybody has your Statistical background.

     

    once again thank you
    6 May 2010, 06:45 PM Reply Like
  • Author’s reply » Hi Guapo,
    Thanks for your message.
    What I have used is simple technical methods to estimate how low prices can fall after a sharp rise since last Mar`09.
    Most of the technicals I have used are simple are can be understood by a simple google search.
    "Fibonacci Retracement Levels" - This technique uses fibonacci ratios to estimate at what lower levels a stock can fall ( support levels) before making further lows. The most common used retracement ratios are 24%,38%,50%,62%,75% . ( I have rounded the percentages and excluded other ratios that are not used that often). These percentages have to applied to the range of the movement of the stock - that is the Highest value minus the the lowest value.
    So example is say a stock goes from 100 to 1100. So lowest value is 100 and Highest value is 1100. Range is 1100 - 100 = 1000. Now after reaching 1100 it starts to fall to 900. Now 1st support level would be at 75% retracement. That is 75% x range = 75% x 1000=750 PLUS the lowest value or 750 + 100 = 850. So 850 will be 75% support level. Say it falls below 850, then next support will be at 62% retracement level. That is (62% x 1000) + 100= 720. So if if falls below 850, next target would be 720. Similarly if it breaks 720 next support at 600 ( 50% retracement level = ( 50% x 1000 + 100). Hope this helps.
    7 May 2010, 05:41 PM Reply Like
  • Author’s reply » Amazing. Just 2 days after my instablog post, many Indices reversed to Bear Market Territory ( below 200 DMA).
    In addition of China, Shanghai, France and Brazil below 200 DMA, here is the update of new entries into the bear market club:
    1) Crude Oil - from 4% above 200 DMA to 1.5% below 200 DMA ( at 75)
    2) FTSE - from +2% above 200 DMA to -4% below 200 DMA ( at 5123)
    3) Germany - From +4% above 200 DMA to -0.5% below 200 DMA.
    And where does it leave US S&P 500 ?
    S&P 500 - From +6% above 200 DMA to just +1.3% above 200 DMA. ( had gone below 200 DMA on intraday basis today and yday)
    7 May 2010, 05:56 PM Reply Like
  • What is number for DOW next support.
    8 May 2010, 12:18 AM Reply Like
  • Author’s reply » Coddy,
    Here is are next support levels for DOW.
    All time high 14,093 made on 12-Oct-07
    All time Low 6,626 made on 6-Mar-09
    Range 7467
    Fibonacci Support/ Resistance Levels
    24% -8388
    38% -9463
    50% - 10360
    62% - 11256

     

    As you can see Dow failed to break above its 62% retracement level of 11,256 and retreated after touching 11,200 on 26-Apr-10 , thus 62% level proving to be big resistance and now Dow has closed very close to NEXT Fibonacci retracement levels of 50% at 10,380 ( vs level of 10,360)
    If it fails to close above 10,360 convincingly then next target of support becomes 38% fib. retracement level or 9463. that is 9% lower than current levels. By the way 200 DMA of DOW is just points 200 points away or 1.7% away from current level of 10,380.
    Here is the chart of Dow www.google.com/finance...
    But why do you track DOW ? DOW major weakness is that is a price -weighed index ( that gives higher weight-age to higher priced stocks instead of giving higher weights based on Market Cap) unlike S&P, Nasdaq and most indices that are market cap weighed.
    S&P 500 looks uglier with next target supports at 890 ( 20% lower than current level of 1111) if it fails to close convincingly above levels of 1117.
    8 May 2010, 03:37 PM Reply Like
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