ANNUAL GLOBAL CURRENCY, COMMODITY & EQUITY OUTLOOKwavesresearch.com/pdf/global short term update...

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ANNUAL GLOBAL CURRENCY, COMMODITY & EQUITY OUTLOOK Waves Research provides in-depth research on varied asset class like Equities, Commodities, and Currencies & has been publishing these reports on a daily, weekly & monthly basis. Waves Research publishes Annual Outlook on Equity, Commodity & Currency for the year 2013.

By Vishal Dalvi, CMT

www.wavesresearch.comMob: +91 9819826382

[email protected] 2

Research by Vishal Dalvi, CMT [email protected] Jan 15, 2013

Wish you a Happy & a Prosperous New Year

As we enter in to the 2013, we have put across our views for the coming year for all Asset classes. While we see Dollar broadly stuck into a big range, a fall at the lower end of the range is our preferred view. This may lead to a rally in Risky asset class like commodities and equities. Within Commodities we may see a sharp recovery in Bullions but we may see some underperformance in Base Metal even though Chinese Market looks like recovering. Crude may also give reasonable upside this year but we expect a dip in the first half of the year followed by a sharp run up. For Equities we feel while Dow Jones may have a limited upside from these levels but Indian Equity Markets have changed structurally The report includes charts & views for the following assets

1. Currency a. Dollar Index b. EURUSD c. GBPUSD d. USDJPY e. USDINR – Indian Rupee

2. Commodities

a. CRB Index b. Gold COMEX c. Silver COMEX d. Copper COMEX e. Nickel LME f. Lead LME g. Zinc LME h. Aluminum LME

3. Equities

a. SENSEX & NIFTY b. Dow Jones c. FTSE


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CURRENCY Dollar Index:

98 99 00 01 02 03 04 05 06 07 08 010 10 11 12 13

30

40

50

60

70Relative Strength Index (50.1002)

70

75

80

85

90

95

100

105

110

115

120

STUCK IN A RANGE

FOR YEARS

DOLLAR INDEX

MONTHLY CHART

60990667

A S O N 2011 A M J A S O D 2012 A M J J A S O D 2013

30

40

50


72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

STUCK IN A RANGE

FOR YEARS

DOLLAR INDEX

WEEKLY

CHART

S S

H

60990667

Wave Analysis: Study of Dollar index is the key to analyze where all risky asset classes like commodities and equities are headed as currency plays a very important role in determining their directions. Though the inverse correlation within dollar Index and Equities is not perfect in smaller time frame, but broadly in the larger picture the inverse correlation does exist. Since 2008 Dollar index has been stuck in a range of 90-75$ and has not been able to breach either side. On Monthly Chart (Left hand side) the structure looks like a triangle formation and a breach of either side would give hints towards the next directional move and this move should be a steep one. This sideways structure has played out in other as asset classes as well. For example if you look at COMEX Gold, Silver, Copper, Crude all have formed a triangular formation in this same period with not real direction. For that matter even few equity indices like Indian Markets have been stuck in a range since last 3-4 years. The right hand side chart is the Weekly Dollar Index chart and we can see an inverse Head & Shoulder Pattern formation. This is a bearish reversal pattern and a break of the neckline at 79-78.5$ would signal some weakness in Dollar Index ahead in the medium term. In the broader perspective this leg down would find support at the Monthly Triangular formation near the 75$ levels. This expectation of medium term weakness in dollar Index makes us bullish on Commodities and Equities as an asset class but we believe there will be a selective play. While Equities are in an overbought territory we expect a short term correction first which would offer a good buying opportunity. Within Commodities, we feel Bullions may outperform this year while Base Metals may remain sideways to mildly bearish. Crude should also eventually break higher this year.


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EURUSD:RALLY AHEAD

2008 2009 2010 2011 2012 2013

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

SS

H

a

b

cW

X

a

b ?

1.3500

1.4000

EURUSD (1.30700, 1.33650, 1.30160, 1.33430, +0.02760)

GBPUSD:TRAINGULAR CONSOLIDATION

2008 2009 2010 2011 2012 2013

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70

1.75

1.80

1.85

1.90

1.95

2.00

b

a

c

d

e

A

GBPUSD (1.60720, 1.61770, 1.59900, 1.61300, +0.00590)

USDJPY:A MAJOR TREND REVERSAL

2008 2009 2010 2011 2012 2013 2014

75

80

85

90

95

100

105

110

S

H

S

1

2

3 ?

USDJPY - JAPANESE YEN (88.1700, 89.4400, 86.8100, 89.1700, +1.05000)

GBPUSD Weekly chart shows a classic symetrical traingle and Wave count doesn’t show any bullish implication with this currency pair. Failure to move above 1.65$ may push prices initially towards the lower end of the traingle near 1.55$. A break of 1.55$ may suggests some significant downside in GBPUSD. GBPINR should see lower levels around 86.50-86.00 INR with stiff

resistance at 90 INR.

Prices have reversed significantly and we belive this bullish trend is here to stay for the year. Prices are currently trading in wave 3. We can also see a 2 year long Inverse Head & Shoulder pattern breakout. A dip towards 85$ cannot be ruled out and prices should then head higher towards 95-100$ eventually. JPYINR could intially see a rise towards 63-64 INR from there it could start the next decline

towards 58-57 INR.

A Head & Shoulder pattern in Dollar index implies an inverse Head & Shoulder pattern in EURUSD. Broadly prices are stuck within a triangular pattern within the range of 1.20-1.45. We expect the Inverse H&S should play out in EURUSD and prices may spend enough time in the range of 1.3500-1.4000. For EURINR we see higher levels of 75-77 INR while supports will

be seen near 69.50 INR.


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USDINR:A BORING SIDEWAYS CONSOLIDATION AHEAD

2007 2008 2009 2010 2011 2012 2013 2014

10

20

30

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80


38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

1

2

3

4

5

A

W

X

Y

B

C

a

b

c

X

a

b

c

A Year of Consolidation

After the steep rise and fall in 2012, we expect this year

to be a year of consolidation in a narrow range

USDINR - INDIAN RUPEE (55.0250, 55.3800, 54.3450, 54.8600, -0.07000)

INDIAN RUPEE USDINR: WEEKLY CHART

2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

56.0

56.5

57.0

57.5

58.0

1

2

3

4

5

A

W

X

Y

B

C

a

b

c

After the steep rise and fall in 2012, we expect this year

to be a year of consolidation in a narrow range

W

a

b

X ?c ?

1

2

3

4

5

X ?

53.50-53.00

Supply Area

56.00

USDINR - INDIAN RUPEE (54.7550, 54.8200, 54.4050, 54.5100, -0.35000)

Prices are currently trading in wave b of X and we could see an initial dip towards 53.50-53.00 before the start of wave c of X. 56.00 levelscontinue to be a very strong resistance zone and it would need a very strong reason to break this supply zone. Post a test of 56.00 we may see the start of next zig-zag correction which may eventually take us towards 50.00 or sub 50.00 levels.

USDINR has been very challenging to trade last year. We suspect that this year it will get even more challenging as we expect a complex correction in USDINR for this year. Prices have already formed a zig-zag formation in the form of wave a-b-c. We may see a double zig-zag correction which may go a year long before prices can turn higher again.


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COMMODITIES

CRB INDEX – ONE LEG HIGHER PENDING

2009 2010 2011 2012 2013

180190200210220230240250260270280290300310320330340350360370380390400410420430440450460470

(A)

a

b

Wc

X

a

b ?

CRB INDEX (294.368, 297.384, 293.902, 297.119, +2.53262)

GOLD COMEX– STRUCTURAL BULL MARKET INTACT

1997 1999 2000 2002 2003 2005 2006 2008 2009 2011 2012 2013 2015 2016

30

40

50

60

70


500

1000

1500

2000

2500

1

2

3

4

i

ii

iii

iv

vi

ii

iii

iv

v ?5 ?

1520

GOLD [CASH] (1,674.90, 1,694.86, 1,626.18, 1,662.59, -12.3600)

CRB index is the Commodity Index and gives hints to the overall direction of all Commodities. Wave structure suggests that prices could head higher from here in the form of wave c of Y. This chart is in line with our bullish view on commodities

overall for this year.

Gold remains in a structural bull market. Though the returns in dollar terms have not been great for last 2-3 years, but the triangle formation in wave iv of 5 explains this sideways consolidation. As long as 1520-1500 is intact prices should continue in the higher high& higher low formation and head towards

2000$.


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BULLIONS

GOLD & SILVER-EXPECT TO SHINE THE MOSTGOLD WEEKLY CHART

M A M J J A S O N D 2012 M A M J J A S O N D 2013 M A M J J A

40

50

60

70


1350

1400

1450

1500

1550

1600

1650

1700

1750

1800

1850

1900

1950

2000

3

4

ii

iii

iv

v

i

ii

iii

iv

v ?

I

II

III

IV

V

a

b

c

d

e

1

a

b

c

1500

1625

1800

1920

2 ?

Accumulation

Zone

GOLD [CASH] (1,655.20, 1,678.83, 1,643.17, 1,662.59, +7.09998)

SILVER WEEKLY CHART

2009 2010 2011 2012 2013

30

40

50

60

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80


10

15

20

25

30

35

40

45

50

55

(1)

i

(2)

ii

iii

iv

i

ii

iii

iv

v

v

(3)

W

X

Y(4)

i

ii

26.00 $

35.50 $

As long as above 26.00$ we do not

rule out possibility of a New High

in Silver

SILVER [CASH] (30.1790, 30.9400, 29.8740, 30.4240, +0.24500)

We believe current levels in Gold

and Silver are most attractive

levels to make long term buying

bets.

Current levels from 1625$ till any

dips till 1580-1550$ should be

used to accumulate long positions

as we expect a steep third wave

rally to start which will take prices

above 1800$.

Silver too has been forming a

triangle type formation in the

form of wave (4). Prices have

retraced almost 61.8% in the

form of wave ii now and are

hovering near trend line support.

As long as 26.00$ is held we

remains extremely bullish on

Silver and any corrections

should be used as buying

opportunity. Prices should

eventually break 35.50$ and

head towards 45-50$ levels.


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MCX GOLD & SILVER

MCX GOLD – CHARTS SHOWS SOME OTHER STORY

S O N D 2011 M A M J J A S O N D 2012 A M J J A S O N D 2013 A


19000

20000

21000

22000

23000

24000

25000

26000

27000

28000

29000

30000

31000

32000

33000

34000

35000

36000

37000

BREACH OF

LONG TERM

CHANNEL

30350Double Top

32500

gold (30,337.00, 30,657.00, 29,794.00, 30,600.00, +269.000)

MCX SILVER – CHARTS SHOWS SOME OTHER STORY

A M J J A S O N D 2007 A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A

35

40

45

50

55

60

65

70

75

80

85

90

Relative Strength Index (46.1136)

15000

20000

25000

30000

35000

40000

45000

50000

55000

60000

65000

70000

75000

80000

48500

silver (58,151.00, 59,139.00, 57,472.00, 57,886.00, -364.000)

Though COMEX Gold looks like a

buy on dips structure, MCX Gold

Chart shows an all together

different story. Rupee

Appreciation has helped here and

we can see a double top formation

along with the breach of a long

term trend line.

Prices have already breach the

neckline of 30350 signaling a 2000

points fall from here on towards

28000.

The different structure in MCX &

COMEX for Gold makes us

neutral for the year expecting a

range bound scenario.

Unlike Gold, MCX Silver usually

does not get skewed from the

COMEX chart because to rupee

movement.

Wave count and structure broadly

remains the same as COMEX and

we expect the support zone of

55,000 should initially hold and

any unexpected from even below

these levels should find firm

support at 48500. We expect this

as the maximum downside for

Silver and expect a rally towards

65000-70000 going ahead.


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ENERGY

CRUDE – LOWER LEVELS WILL HOLD

2008 2009 2010 2011 2012 2013

3040506070


25

30

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135

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145

150

155

a

b

cW

X ?

LIGHT CRUDE CONTINUOUS [NYMEX] (93.2100, 94.7000, 92.4200, 93.5600, +0.47000)

NATURAL GAS – LIMITED ROOM FOR UPSIDE

J A S O N 2010 A M J A S O N 2011 A M J J A S O D 2012 A M J J A S O D 2013 A M

25

30

35

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45

50

55

60

65


2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

3.0

O O O

PP

P

P

O

O

Resistance Near The Down Trend Channel

NATURAL GAS CONTINUOUS 10000 MMBTU [NYMEX] (3.27700, 3.35200, 3.08700, 3.32700, +0.04000)

Crude could see an initial dip

towards 80$ to complete wave X

and then head higher towards a

new intermediate high of 120$.

Overall structure remains quite

bullish for Crude and we

recommended buying at lower

levels. In MCX 4600 followed by

4450 INR is a strong support zone

which should hold for a rally

towards 6000 INR.

NG has shown a good recovery

last year but weather we have our

doubts whether this uptrend will

continue this year.

The entire correction has been

corrective and over lapping in

nature and we see very limited

upside from here on. Stiff

horizontal resistance is seen neat

3.80-4.00$ and as long as below

this level expect a drift towards

3.00 followed by 2.5$.

In MCX levels of 195-200 INR

should cap for a decline towards

150 INR.


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BASE METALS

COPPER – TIGTHEN YOUR SEAT BEATLS FOR A STEEP SELL OFF

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

30

40

50

60

70

80


1

2

3

4

5

I

II

III

IV

VA

a

b

c

B

I

a

b

II ?

Last corrective leg likely before the next

bull run towards a new High

60991958

A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 2014


1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

III

IV

VA

a

b

c

B

I

a

b

II ?

1

2

3

4

5

Previous fourth level

at 2.730$ c ?

Break above 3.84$ may indicate

the start of Next Leg Up

3.84

Commodities always give a steep

movement on a break of traingular formation

Favored view remains a break down before

next leg up

HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.70350, 3.71800, 3.65200, 3.65400, -0.03950)

May Jun Jul Aug Sep Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Feb Mar

2.90

2.95

3.00

3.05

3.10

3.15

3.20

3.25

3.30

3.35

3.40

3.45

3.50

3.55

3.60

3.65

3.70

3.75

3.80

3.85

3.90

3.95

4.00

4.05

4.10

4.15

4.20

4.25

4.30

4.35

4.40

4.45

4.50

4.55

4.60

4.65

O

P

O

O

P

O

O

P

38

Day Time

Cycle

Time Cycle Pointing

at an intermediate Top

P

HG COPPER CONTINUOUS 25000 LBS [COMEX] (3.67100, 3.71800, 3.66600, 3.70900, +0.03850)

Copper is near a crucial resistance of the

triangle trend line and we expect sharp

correction in Copper prices towards 3.00-

2.80$ levels near the previous wave 4 in

COMEX.

Time cycles also suggests a medium term top

in prices. A break above 3.84$ is needed to

negate this bearish view and suggest the start

of next rally.

Initial support could be seen at the triangle

trend line at 3.50$ and a break below this will

trigger a sell off towards 2.80-2.70$.




NICKEL LEAD

ALUMINIUM ZINC Other base metals have been stuck in a range for last few years now. Every Metal has a series of resistances at higher levels and we feel all other base metals should follow suit with Copper. We see lower levels in Nickel up to 16500-16000$ in LME while zinc should head towards 1900-1850$. LME Lead should drag itself towards 2150-2080$ and Aluminum should also fall in the range of 1950$.Broadly prices will remain in a sideways to negative bias and higher levels should be used for shorting.

2005 J J A S O N D 2006 A M J J A S O N D 2007 A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A

20

30

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10000

15000

20000

25000

30000

35000

40000

45000

50000

55000LME NICKLE (18,622.00, 18,770.00, 18,130.00, 18,225.00, -414.000)

2005 J J A S O N D 2006 A M J J A S O N D 2007 A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A

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4000

4100LME LEAD (2,468.00, 2,483.25, 2,395.25, 2,421.50, -39.7500)

May Jun Jul Aug Sep Oct Nov Dec 2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Mar Apr

2025303540455055606570


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3400

3450

3500

3550LME ALUMINIUM (2,127.00, 2,147.25, 2,082.00, 2,105.75, -18.7500)

May Jun Jul Aug Sep Oct Nov Dec 2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Mar Apr


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4300

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4800LME ZINC (2,171.00, 2,190.00, 2,144.00, 2,168.50, -5.25000)




EQUITIES Sensex has seen an above 20% return in the calendar year 2012 while there remained a pessimist outlook around in the economy. If we look at the past 4 years though and post the election gap in 2009 around 13500 levels the Index has really not given any exceptional returns as compared to a Bank FD. We believe that this era of underperformance and a range bound activity is behind us now and we should continue to outperform in terms of absolutes returns as compared to other any returns in other asset class. Index has given a decent rally from 15500-19500 and a correction cannot be ruled out, but our sense is that the dynamics of this Markets have changed. It’s a no going to spend time in a range, where you would want to short after a 10-15% rally and initiate fresh longs when it corrects a bit. Markets are going to remain in a buy on dips mode now. If we try to forecast Sensex outlook for a year, we believe a correction if any, may not be able to see lower levels than 18000 and this could be a reasonable level for people to initiate longs who haven’t participated in this year rally. As per wave count we feel prices have completed the wave (2) at the bottom of 15500 and not the previous bottom of 14500 made in Nov 2012. Post this rally we may be near in completing a five wave advance and may see some exhaustion in the range of 20000-20500. If this wave count is right we may consolidate till the month of May in a corrective move till 18000 from where a fresh 3rd wave rally should start. This rally will then take us eventually towards a new all time high levels of 24000 by the year end. Index wise we see outperformance in the sectors like Metals, IT and Energy. We have identified 11 stocks which according to us will be the shining stars of 2013 where we expect at least a conservative target of 25-30% up move. These stocks are in a structural uptrend and some for them may not have a good risk –reward at current market levels but any dips near the levels we have mentioned may fetch spectacular returns for this year. For Nifty our target are 6560 followed by 7654 with the base level of 5400.




DOW JONES– ONE LAST LEG UP BEFORE THE NEXT BIG FALL

2007 2008 2009 2010 2011 2012 2013

20

30

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50

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6000

6500

7000

7500

8000

8500

9000

9500

10000

10500

11000

11500

12000

12500

13000

13500

14000

14500

1

2

3

4

i

ii

iii

iv

5

A

B

C ?

a

b

c

d

e ?DOW JONES INDL AVG (DJIA) (13,488.43, 13,633.89, 13,445.80, 13,596.02, +107.590)

FTSE– SOME MORE STEAM LEFT

2007 2008 2009 2010 2011 2012 2013

20

3040

50

60


3500

4000

4500

5000

5500

6000

6500

7000

1

2

3

4

5

A

B

C ?

FTSE 100 INDEX (6,121.58, 6,135.89, 6,076.12, 6,132.36, +10.7798)

Dow Jones Industrial Average Index continues to form a higher high and has been a gainer last year. Wave count suggests that prices are nearing a significant top and we could be in the last leg of the ending diagonal in the corrective wave C. On the higher side 14,000 could be the levels where upside could be capped. 2008 highs are around 14200. This high should not be taken out for this wave count to be valid. Break of 1290 would suggest start of a larger decline. We remain underweight on Dow for 2013.

FTSE chart looks a relatively better one than Dow Jones. Prices are currently trading at the 6100-6150 resistance zone. A breach of this may fetch higher levels of 6300-6500 where wave C could complete. The rally is still a corrective one in nature and we expect a larger decline to start once wave C is over. Breach of 5800 on the downside may break the rising trend line from 2009 lows and signal a major downside then. Favored view remains a rally around 6300 followed by a

significant correction.




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