Weekly Report 20111003-VR

8/4/2019 Weekly Report 20111003-VR

1/17

Monday, October 03, 2011

Weekly Update

TECHNICAL RESEARCH REPORTWEEKLY UPDATE

Vipul Ramaiya, CFTe

Technical Analyst

JMN Investments Research (P) Ltd.


2/17


Weekly Update

Contents

This report analyses 5-Year charts of:

US Markets: S&P 500 Index

NASDAQ Composite

Commodities Gold

Silver

Crude Oil

Europe & Latin America CAC 40 (France)

DAX (Germany)

FTSE 100 (UK)

Bovespa (Brazil)

Asian Indices S&P CNX Nifty (India)

HangSeng Index (Honk Kong)

Shanghai Composite (China)

Taiwan Weighted (Taiwan) Nikkei (Japan)


3/17


Weekly Update

S&P 500 Index

1

New Momentum Low

SPXTwo Fibonacci Retracements have been added to the chart above: (1) 1575-665 (The 2008-09 Bear Market); and (2) 665-1375 (2009-11 Bull Market).

The purpose of this is to identify significant confluence areas of support and resistance along with the moving averages. As highlighted by the thick yellow

line on the chart above, 1100-1120 is a crucial support zone for the S&P 500 Index. It has been tested on more than 4 occasions in the past and continues to

support the price structure currently. There is also the 200-week MA which is currently at 1144. The index has been consolidating around this zone of 1120-

1220. A break below this range should see a quick move to the next support zone of 1020-1040, which is also the 50% retracement of the 2009-11 up move.


4/17


Weekly Update

NASDAQ Composite Index

3

New Momentum Low

NASDAQ CompositeCompared to the S&P 500 Index, the NASDAQ Composite index is indeed the stronger of the two, it managed to retrace the entire

100% lost during the 2008-09 Bear market. Similar to the previous chart, 2 Fibonacci retracements are drawn: (a) 2880-1265 (2008-09 Bear Market); and (b)

1265-2882 (2009-11 Bull Market). Recent price action has just pulled back to the 20-/50-EMAs post violating them, as they are about to cross bearishly. As

visible in the chart, the first key support level for the Index comes at 2265-2300 (which is the 38% retracement level and the 200-week MA) and then at 2100

(which is the 50% retracement level and also a key intermediate support level from 2010).


5/17


Weekly Update

USD Index

11

USD IndexA 5-Year weekly chart of the USD Index reveals the consolidation range that has been in force since mid 2008. Recent price action successfully

retested the lower end of the range and is currently poised to retest its upper end. An important observation: The USD appeared to be forming an ascending

triangle (2008-2011), the lower end of which was violated in early 2011. This should have resulted into a huge build up of short positions in and around 77-78

zone. However, price action consolidated post violating the uptrend support line and reversed, subsequently resulting into a failure of the bearish breakout.

These short positions would be protected with a stop of around 79-81, levels which if surpassed on the upside, will result into a huge short covering rally

which could in turn propel the index to the levels of 88-89 in the medium term.


6/17


Weekly Update

GOLD

5

New Momentum Low

GoldRetest of key uptrend support line at $1525-1550 appears to be underway. This uptrend support line is quite significant given the number of retests in

the last 2 years. As far as momentum is concerned, it does support the price action (by hitting new highs along with the price action). Volume also confirms

the bullish price action. However, the recent correction has had the MACD hit a new momentum low, suggesting that bulls are tired and reluctant to support

prices at these levels. An uptrend reversal is confirmed if price action manages to violate the key uptrend support line. Until that happens, the uptrend is

assumed to be in force, and all corrections/dips to the 20-/50-EMA to be considered as buying opportunities (including the current one).


7/17


Weekly Update

SILVER

7

Momentum Warning

SILVERIntermediate trend in Silver has turned lower post the lower high: lower low formation completed In July-August 2011. Recent price action violated

key support level of $32-33 which did provide some support to price action post a violent correction off the highs ($49.70) in May-June 2011. Up until then,

the commodity looked quite extended from both the uptrend support line and the 50-week EMA. Two trend lines visible on the chart are currently at levels

of $28 and at $24. $24 is a key level for the commodity (61% Fib retracement level and the key uptrend support line). Violation of $24 indicates a reversal of

the primary uptrend, which should result into a retest of the $20 level (which is a major LT support level). Until that happens, all retests of the $28 and then

of $24 should be considered as buying opportunities subject to the confirmation of support at these levels by price action.


8/17


Weekly Update

CRUDE OIL

9

Crude OilIntermediate trend is lower post violation of the upward rising price channel in August 2011. Currently, price action appears to be consolidating

around the 200-week EMA. Price structure suggests that the commodity should resume its downtrend and a retest of the next major support zone ($67-$70)

has already unfolded. Relief rallies into resistance ($85-87) should be used as short selling opportunities with $70 as the first downside target.


9/17


Weekly Update

CAC 40 Index

13

Violation of key support level

along with the MACD hitting

new momentum lows

Violation of Key

Support Level - 3400

CAC 40 IndexThe CAC 40 Index has been the weakest amongst the 3 major European indices, approaching almost the 2008-09 bear market lows of 2500-

2600. The 2009-10 price action did resemble a rising wedge pattern, which was violated on the downside resulting into a huge downwards shift in price

momentum beginning July 2011. The bears are on a rampage here, as price action seems to be headed towards a retest of the 2500-2600 levels, violation of

which on the downside seems very likely.


10/17


Weekly Update

FTSE Index

15

FTSE Index Post violating an uptrend support line, recent price action has been consolidating at a key confluence support zone (the 200-week MA/38% Fib

Retracement level/Key intermediate support level of 2010). The MACD did warn of a potential trend reversal with the help of a huge negative divergence

with price action starting April 2010. A violation of the current support zone should lead price action to the next support level of 4800 which is also the 50%

Fibonacci retracement of the entire 2009-11 up move (3455-6100). On the other hand, given the bearish price structure, relief rallies/ pullbacks should not

last beyond 5400-5600 (20-/50-EMAs).


11/17


Weekly Update

DAX Index

17

New Momentum Low

DAX IndexThe 5-Year weekly chart displays quite a weak price structure, which is contained in the fact that violation of the uptrend support line resulted

into a sharp correction of over 25% from the 2011 highs. The index is currently poised at a crucial support zone, which is the 61.8% retracement level of the

entire bull market (3600-7600). One should not rule out a meaningful bounce from current levels, as a violation of this zone opens up the potential of the

index retracing the entire bull market up move (to 3600). The oversold nature of the market, and the overextension of price from the MAs does call for a ST

consolidation/brief pullback atleast towards the falling 20-week EMA (at 6250).


12/17


Weekly Update

S&P CNX NIFTY Index

19

Momentum Warning

S&P CNX Nifty IndexIndia has been the strongest market amongst its Asian peers, retracing only about 38% of the bull market from (2009-till date). The

index is currently grinding lower, while other markets have witnessed sharp sell-offs. This relative outperformance should not last long, given the bearish

price structure of the other markets. The thick yellow line on the chart highlights a key confluence area 4600-4800. This support level is quite significant

from a technical perspective, given the number of retests. Also, another key observation is the massive negative divergence developing in the MACD

oscillator giving a negative bias to the price structure. To conclude, a huge downward shift in momentum may take place if this support zone is violated. Until

that happens, this low volatility environment should stay in place.


13/17


Weekly Update

HANG SENG Index

21

Open Air

HANG SENG IndexRecent price action has violated a key support level (19000-19500), which has in turn resulted into a massive shift in price momentum to

the downside. The index has failed to find support at the 50% retracement level of 17800-18000 and is currently headed for a retest of the next major

support level of 16000. A key observation here is that, given the bearish underlying price structure, price action should in the near future find itself testing

the crucial support zone of 16000, which if violated, opens up a potential to not only retrace to the bottom of the the entire 2009-11 bull market up move, it

also opens up the possibility of the index to hit new lows which are much lower than the 2008 lows.


14/17


Weekly Update

SHANGHAI COMPOSITE Index

23

Shanghai CompositeThe index is currently poised at a crucial support zone (2250-2350). This is not only the 61.8% Fibonacci retracement level of the 2009-

11 up move; it also is the lower end of a multiyear descending triangle. A violation of this support zone sets up the possibility of the index retracing back to

the 2008 lows (1700).


15/17


Weekly Update

TAIWAN WEIGHTED Index

25

Taiwan Weighted IndexRecent price action appears to have violated a crucial support level of 7250 on the weekly chart. The bearish structure underlying

price action is enhanced by the 20-/50-EMAs crossing bearishly, while the MACD oscillator hits a new momentum low. A massive negative divergence on the

MACD was visible starting 2010, which has eventually resulted into a primary uptrend reversal confirmed by the price action last week. To conclude, all rallies

from here are to be treated with suspect and one should look out for downside targets of 6500 and then 6000 in the medium term.


16/17


Weekly Update

NIKKEI AVERAGE Index

27

Price Objective for H&S: 7000

Nikkei Average IndexRecent price action appears to have completed the formation of a Head & Shoulders formation, and has violated the neckline/key

support level of 9000. Consider pullbacks to the neckline as short selling opportunities, with a price objective of 7000 on the index (which is also the 2008-09

Bear market low). This bearish breakout is supported by the 20-/50-EMAs crossing bearishly, and the downwards sloping 200-week MA.


17/17


Weekly Update

BOVESPA Index

29

Bovespa IndexMajority of the 2009-10 price action looks distributional. A lengthy negative divergence on the MACD oscillator has resulted into an uptrend

reversal, with price action confirming the same by violating key support level of 56-58000 on the downside. A near term support for the index is at 52000,

which I think will not hold given the strong underlying bearish price structure. Eventually, price action should look to retest 46000 on the downside. Stops for

short positions should be around the 59-60K levels, which if crossed on the upside, would neutralize the bearish structure of price.

Weekly Report 20111003-VR

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