Sunday, July 26, 2009

Weekly Markets Analysis

The much touted Head & Shoulder failed miserably across all equity markets and most of the blogs I read are littered with stories of frustrated (and wounded) bears. The sentiment seems to have done an about turn in the equity markets and the most talked about pattern these days is the reverse head & shoulder in weekly S&P charts!! talk about reversals!! The reverse H&S pattern has now been triggered going by the traditional technical analysis. However, I would like to see a close above the blue line for second week in a row - as shown in the chart.

There are a few things to keep in mind though: The first counter-signal that I see is coming from forex markets - With renewed strength in the equity markets - US Dollar should be getting murdered by currencies like Australian Dollar and New Zealand Dollar - which doesn't seem to be happening at the moment. The second counter indication is coming from Bond markets which should be getting sold-off the cliff with so much strength in equities - again this is missing at the moment and at best there seems to be some half hearted attempt to sell Bund and T-Notes - but no fresh lows for the time being at least. Another strange indication is the weakness in soft commodities like Soybean Meal & Wheat . These markets took support along with equities in March: however, the rally in these markets stopped in the beginning of June and Wheat made fresh lows after that.

To sum up - there are plenty of inter-market signals which make the strength in equities a bit difficult to understand - but to generate any serious short-interest - Nifty would have to close below 3900 - something which looks quite improbable at the moment. For the time being - we just have to play this market on a very short term basis and roll with the momentum.

All the best for your trading!