Sunday, March 6, 2011

Key Week for the Market

The Markets are based at a key turning point. The budget has come and gone. It was a nothing budget treated as a positive budget by the markets grasping at straws.Gold hit new highs, crude boiled over and the DMK Ministers pulled out of the cabinet.

1. The DMK pulled out of the government and will give issue based support. What this means in plain terms is that this is a lame duck government. They have outside support from Samajwadi and Mayawati which will keep them afloat for now. The ability of government to push through reforms gets limited now and this will be a trigger for the FIIs to lighten up on India.

2. Brent crude at 116 dollars. Under-recoveries on Petrol at Rs 4 and Diesel at Rs 11. The economy is going to start hurting. In 4 months, Petrol has moved up from Rs 48 to Rs 63. Inflation will continue and high interest rates will hurt the economy.

3. Gold has given a breakout on charts. It hit a fresh all time high of 1441 dollars and closed on Friday at 1432 dollars. 1432 dollars was the previous all time intra day high. Closing above previous intra day high on weekly basis is a very bullish close. Next target would be 1500 dollars.

4. 15 barrels of oil = 1 ounce of gold. So, if oil continues at 120 dollars a barrel, gold should move to 1800 dollars an ounce in next 3 months.

5. The Death cross has happened. This is for both the Moving Averages and Exponential Moving Averages. This is when the 50 EMA crosses the 200 EMA on the downside or 50 MA crosses the 200 MA on the downside. This is a very significant downside crossover signaling start of a bear market. The markets may not collapse overnight but a long term bear market starts. Looks at the crossovers they have been clean and this is the first time since Mar 09 we have got this crossover.

6. Libya seems to be i for a prolonged stalemate. This is bad news for crude oil as prices will continue to be at highs.

To sum up, we have bad news on political front, India imports 70 pc of crude oil which is at highs. We have bad news both on the domestic as well as foreign fronts. Charts had signalled a decline long back and this is just news catching up with the charts.

No comments:

Post a Comment