Dear Members,

Gold Bugs Index [HUI]

Gold Bugs index has fallen to the lower end of a falling channel over the lat 6 months. The pattern is A-B-C or a zig-zag, and we now have a positive divergence on the RSI. The index should have bottomed here and should mark a bottom for Gold mining stocks. This supports the view that gold and silver are bottomed out near term.

Euro

The Euro momentum on daily charts crossed back to the buy side, and we closed above the 20dma at 1.23 that should now act as the key support. Whether I take the earlier count of wave 5 of 3 or 3/3 the next move higher points to 1.32 based on both the wave counts. In case you do not know EURUSD and USDJPY contracts started trading on the NSE currency futures last week. That is right, no more NDF markets needed for this.

USDBRL

The Brazilian Real has been in wave B for a while and I was expecting a larger retracement of wave A, however wave B has ended up forming a nearly one year long triangle. Wave (e) of B did not touch the upper line but came close enough. The odds now are for wave C down to start. C=A means going down to 2.42. This sounds just as insane as the bullish views on the contract I had 5 years ago. If the Real is going to get this strong what does it mean? Start thinking. The upper line is at 3.322, and at the most we will attempt to touch it but that should be the cut off point for this view now. The lower line is at 3.14 and a close below it would confirm this view further.

Brazil EMs and US Stocks

I have written and spoken about this before but it needs mention again. Reason is that the dollar is starting a decline that might also push up the BRL, or Brazilian Real. This along with rising commodity prices is akin to what happened in 2008. Countries like Brazil and Russia that export commodities saw their stock markets make new highs even as the S&P was falling. Reason? Commodity prices were rising till June 2008 especially Oil. Not India markets, but Indian metals stocks did manage a double top into May 2008 as a sector play.

Similarly during 2011-2016 when the dollar rallied crashing commodities these markets were killed.

So now as the US equities show signs of rolling over along with the dollar we maybe in for another period where EMs that are commodity producers will go up a lot and outperform US markets. India is not one of them but we do have metals and commodity producers. What about trump tariffs? then only raise the imported cost of Steel and Aluminium for the US that is all. A falling dollar is the Macro trend driving commodity prices higher. So far on this chart all are rising together but the S&P came close to breaking the pink line and maybe it will break next time round. But watch the others as they might just save the day.