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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
  • Beginning of the end of the bull market - Part 2 2 comments
    May 16, 2010 7:16 PM | about stocks: SPY, AAXJ, EWZ, HSXUF, CNY, AGEM, IFN, EPI, FXI, PGJ, UUP, ERO, DAX-OLD, EWQ, EWG, EWH, OIL, SPXU

    This objective of this post is to continue to examine technical evidence for global stock markets trend reversal into a bear market i.e below 200 DMA.

    Summary - For the first time in the past 12 months, the technical evidence for the coming bear market in stocks and commodities outweights any positives. 
    Fundamentally
    also there is a lot of evidence for correction (1) Euro USD  parity target to be the biggest factor for pushing most markets into bear market (2) Over Supply of paper in primary market (3) Bankrupt goverments worldwide to raise taxes and thus hurt sentiment and corporate earnings.(4) High potential of Sovereign debt issues to infect bigger countries like UK & US. But I might save the fundamental reasons for a later post and focus on technicals since this post is to give more of a technical perspective.

    At the start of this month -on 5 May 2010, I had posted a technical thesis on why global stock markets are poised to fall into a bear market, it was titled " Is this the beginning of the end of the bull market".  Then just a handful of indices were above 200 DMA - those were EU - FTSE & Germany `s Dax , S&P 500 SPX and in Asia - the India NIFTY index and crude oil. But just a couple of days later , except US S&P 500 and India , all these indices closed below 200 DMA. Even India & US S&P 500 were just 1-2% above 200 DMA. ( But intra- day ,S&P 500 had breached below 200 DMA for 2 consecutive days on 6 th & 7 th May). Then came the EU $ 1 trillion bailout and most markets rebounded strongly.. but only to give up almost all the gains by the end of the week.

    This again confirms that we have more down-sides ahead and reaffirms my bearish view that it is inevitable that global markets will break below their 200 DMA and this time the correction would last for a couple of months at least.

    As per my previous post , Bears a.k.a Wolfpack - would expect EU `s bazooka to be just not enough

    Euro USD Parity target
      -will have huge implications for commodity markets and Stock markets and I would rate this is the singlemost biggest factor that will certainly force all markets into bear market.
    Euro -
    1.235 -is already below 2008 -post Lehman lows of 1.25 and now targets its next support at 1.15 which is the 5 year low.


    Crude Oil - 72 - below 200 DMA of 76 since last week.

    Now lets examine how sustainable were the gains for last week , post the great $1 Trillion EU `s bailout.
    I shall start with markets that were the strongest i.e didnt close below 200 DMA.

    S&P 500 - all gains given up by end of the week. Monday opened up +4% and closed at above 1160 ( from prev. days close of 1111) only to close the week at 1135.

    S&P 500 also met stiff resistance at 50 DMA at 1170. S&P close of 1135 that is above its fibonacci 50% retracement level of 1122 and if it closes convincingly below this then next support is at 38% fibonacci retracement or at 1017. 200 DMA at 1100 ,would be first target support though.
    S&P 500 Fibonacci levels
    All time high    1562
    All time Low    683
    Range    879
    Fibonacci Support /Resistance Levels   
    24%     890
    38%     1,017
    50%     1,123
    62%     1,228
    75%     1,342
    S&P 500 - time for a break

    India `s Nseindia NIFTY index
    - all gains given up by end of the week. On Monday closed up +3.5% from prev. days close of 5018 to 5095. But closed the week at 5093. Similar to S&P 500 , for NIFTY 50 DMA at 5200 proved to be a big resistance. Next NIFTY support is at 4885 ( 62 % fibonacci retracement ) and at 4950  - the 200 DMA. If these levels are broken convincingly then next target would be 4450 ( 50% fibonacci retracement level)

    NIFTY -Fibonacci Support /Resistance Levels   
    All time high    6274
    All time Low    2620
    Range         3654
    Fibonacci Support /Resistance Levels   
    24%     3,482
    38%     4,009
    50%     4,447
    62%     4,885
    75%     5,361
    88%     5,836
    NIFTY - has`nt done much in past 6 months

    Among BRIC - Except India (which is just 3% above 200 DMA ) & Russia ( just 2% above 20-DMA), the rest two are below 200 DMA.

    Germany - had closed below 200 DMA before the bailout but post bailout has rebounded above 200 DMA but have to see if it can escape bear market. cmp 6070 below 50 DMA of 6100 but above 200 DMA of 5770.

    Other big markets are now looking ugly - below 200 DMA since past couple of weeks.( PIIGS are anyway in worst shape so no point of seeing their charts)
    France - firmly below 200 DMA

    FTSE London - cmp 5263 -just clinging to 200 DMA at 5255

     



    Disclosure: Short: India `s Nifty Long: Gold and Micro cap Indian stocks
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Comments (2)
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  • Paul Hanly
    , contributor
    Comments (840) | Send Message
     
    What worked once in many markets may not work consistently in any market. The costs of whipsawing can burn a lot of your equity. SMA's work well in bear markets, but can cost a lot in bull markets compared to a buy and hold strategy. Doug Short has done some great work on sma's for both US and Japan.
    21 May 2010, 10:27 AM Reply Like
  • Djvu
    , contributor
    Comments (574) | Send Message
     
    Author’s reply » Hi Explorer,
    nice to know your views.I agree DMAs are not perfect. But it helps when you use multiple technical tools and then if most of then confirm the trend.
    For eg. ALL markets ( including US & India & even Aus) are below their 200 DMAs. Even all commodities are below their 200 DMAs. ( except Gold). When you have such bearish technical evidence, it gives more confirmation of the change in trend from bullish to bearish.
    Yes markets are oversold in the shorter term but when markets can be overbought for 4/5 months , then why cant markets be oversold for 3/4 weeks ?
    In the last 12 months, markets have rebounded sharply after a 8%-10% correction. But that was when the primary trend was bullish. So I believe the trend has changed and now its best to "go short on rallies".( for an aggressive trader). Long term investors can use to average and enter at lower levels but I am in no hurry.
    Doug Short ? Can you post the link ? Thanks
    25 May 2010, 09:58 PM Reply Like
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