Dear Members,

NSE IT - Sector Index View

Someone asked me on twitter to cover the IT index too. So why not. It is a slower moving index but I used this index as my poster boy for a top call on the IT sector for years. And it has finally rolled over. What was the basis for this view? It was the value wave framework which you can read here http://www.indiacharts.com/icjpages/index.php/indiamkts/valuewave 

Based on this a stock or sector peaks in a 3rd wave on the highest growth phase for it. Then the 5th and final wave long term is on weaker growth. This can be seen for the IT sectors falling Operating profits and profit growth. Infosys used to grow earnings at 100% and now does at 5%. Another feature of this market behaviour is when analysts call an old growth stock a defensive stock, it is in wave 5 long term. Now wave 5 can go up but it is terminal 2003-2016 is a long period for a 5th wave. But it did not go far above 2000, and also did not repeat the performance of the growth years. Worse is if I am right and you go back even 50% of wave 5. The impact on long term investment performance is significant. It was just not worth the exercise. This is the perspective that EW adds to where you are fundamentally in the cycle.

So the IT index ended wave 5 long term and completed waves 1 and 2 after that. 61.8% of the entire 5th wave is at 5572 near the wave D low as a conservative estimate of where the sector could bottom long term. We may review it there.

The near term chart shows wave 3 down in progress and the downward momentum will pick up below 10000. After that 3=1 would point to 8690 and 3=1.618 times wave 1 = 7800. These would both be open.

Nasdaq 100

So while the Dow tested its highs again the Nasdaq was again pulled down as all the FANG stocks gave up. The Nasdaq 100 index broke the 29/06 swing low. The neckline of a h&s broken the pattern points to 5420.

DAX

DAX - the German index has not confirmed a trend reversal on long term charts yet but it did form a doji star on the quarterly chart. That it did so after achieving the target of 5=1 shown by the box makes it an important candle to watch as the trend could be complete here.

Karachi 100

A very steep fall in the Karachi 100, and it is in wave 5/5, but the 5th wave did not achieve the Fibonacci or channel target. So I leave it open as to whether the final top is in or not. While possible ideally it should extend some more.

US 30 year Treasury bonds

While the 10 year has already broken the rising channel 2 days ago the 30 year bonds are now at the rising trendline near 152. So a further decline in the bond market will get this second confirmation of a break down in the bond market. We would be at the start of a 3rd wave down in US bonds. [We have discussed this scenario and its impact in this months Long short report.]

Soy Meal CBT

Soy Meal prices made a double bottom near 292$, and broke out of the falling trendine for wave of 2. A bottom maybe now in place for a larger 3rd wave up to start. Initial hurdle is 330 at 61.8% of Y. Then the X at 354 after that we should be heading to a new high above 432.Failure to go above 330 and 354 can keep us in wave 2 by some alternate patters.

BSE Auto Index

The Indian Auto sector was on a rage for years but the trend has been narrowing down in the last few years. The performance of stocks in the sector has also diverged. All this resulted in the Auto index completing an ending pattern in wave 5. If we close down for this month the high may have been put in for the Long term trend. A 5 wave rally from 2001 would be complete where 3<1 and 5<3. The Indian Auto sector stocks could then enter a deeper bear market.

Crude

While the breakout from the falling channel can mark a trend reversal, the wave counts leave open the possibility of one last push lower to complete a 5 wave decline in wave c. The 20dma at 45.20 needs to be crossed to rule this out else we drop from there to 42 or lower in wave v of c.

USDCAD

USDCAD - the last post identified the Wave B high at 61.8%. From there we have a 5 wave decline so the down trend is established. We may get the first retracement of the fall when the 5 wave decline completes but the larger trend down will resume again, till C=A is achieved. The RSI is getting oversold. 1.33 near the wave 4 high would be a resistance level during a counter trend move up. After that we may head to 1.25 in wave 3 of C.

Wheat CBT

After being bullish global wheat prices in my last update I was negative as prices reacted from the falling channel of the last few years. But we now have a breakout so it is best to stick to the original outlook. Wheat CBT should be in wave 3/3 up now. Staying above 470 the trend is up and the next two swing resistance levels are 524 and 615. The monthly Bollinger band is also near 500. So getting past the 500-524 range would expand volatility meaningfully.

Coffee CSCE

Coffee prices bounced back from the oversold territory, meaning an RSI of below 30 on both the daily and weekly charts. The near term a falling trendline from the wave d high is at 131, so a move above 131 should be a final confirmation of a trend reversal. The quarterly chart below shows the big picture. The development of a triangle from 2010 onwards which is mostly wave B, and sets it up for wave C up a major new bull move for Coffee prices. Lets get a little imaginative here. If C=A is achieved over 5 years Coffee prices go to 700 from 125 now. That is quite crazy. The triangle breakout will be above 168. Note it is also possible that prices remain within the triangle for now and only go to 168 to come back to 120 again. So unless we breakout the triangle is still forming. For the year ahead however a move to 168 can be seen.