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Equity Markets in 2010

Equity Markets in 2010

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Published by Ankur Sharda
Prediction for Gold, US Dollar Index and Equity Markets of the world.
Prediction for Gold, US Dollar Index and Equity Markets of the world.

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Published by: Ankur Sharda on Dec 16, 2009
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05/24/2012

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Down Trend is Imminent
:The upward rally gave unrealistically high returns in short span of 6 months as on lastweek of October, where the returns are approximately 90 to 110% across all emergingmarkets like Brazil, China, Taiwan, India, Hong Kong, Singapore and few morecountries. Achieving nearly 100% return on emerging markets in less than 6 months isBUBBLY. China, Hong Kong, Singapore, Brazil and India gave almost 100% returnswithin 5 months whereas Shanghai Composite (China) fell sharply by 25% during themonth of August. As the size of rally is substantial in percentage as well as in absoluteterms then the law of gravity is applicable to every market, which means heavy fall inequity markets should take place anytime during first quarter of 2010 as we wereexpecting it to happen in last quarter of 2009. DJIA is currently in 4
th
primary wave andthe final 5
th
primary wave downwards should start anytime in near future and shouldcomplete at 5400 level or higher bottom at 7550 during the year 2010. BSE Sensexshould have been peaked out at 15450 levels which proved to be incorrect since then ithad touched 17400. The current correction of upward rally in equity markets are headingfor next round of down turn which could be double bottom formation, higher bottom andeven lower bottom depending upon country to country, before a long term secular bullmarkets take their own shape. Correction between 50 to 65 % of the rise can take place asthe time shall tell but without a meaningful percentage fall, long term secular bull marketcannot develop. DJIA and some European equity markets can make new lows. Gold has behaved as per the expectation of our earlier article where it breached upwards 1030 after 18 months. Gold should set for 1450 before a meaningful correction will take place. USDollar Index also turned from the bottom of 74 levels and should stabilize around 88. USDollar Index behaved as per our expectation in last article where it should rebound fromthe range of 72.5 to 75 and it should set for the target of 90 by mid of year 2010.Commodities should fall as correction to the rise. Simultaneously, equity markets would behave in tandem with commodities.Technically speaking:Dow Jones Industrial Average (DJIA)Current Level 10500Bottom 6550Resistance 10800Long Term Target of 7550 (Revised)DJIA has broken all the major resistances and it could surprise by going upto 10800thereafter it could fall upto 7550. It is passing the stage of fourth primary wave of long bear market and shall move towards the fifth wave of primary movement after theupward correction is completed. 1996 level of 5400 shows the strong support for DJIA.Somehow, 7550 stands as a strong support.Medium term target is at 7550. Short term target is achieving nearly at 10800.Sell is recommended for DJIA.Straits Times Index (STI)Current Level 2810Bottom 1450Support 1900
 
Resistance 2830STI moved up from the bottom of 1456 to 2810 where it broke the major resistances. SoSTI level of 1910 become the strong support for STI and 65% correction of entire upwardrally. It has achieved the target stated in our May’09 article which states the target of 2830. It seems that STI made a peak at 2810 as 5 waves Dow Theory is completed.Sell is recommended at current level with support at around 1910 level.Hang Sang Index (HSI)Current Level 22250Bottom 11300Support 15600Resistance 22800HSI moved up from the bottom of 11350 to 22250 where it has achieved our May’09article which states 20800 levels. So index level of 15600, become the strong support for HSI and 1/2 correction of entire upward rally.Sell is recommended at current level with support at around 15600 levels.BSE Sensex (BSE)Current Level 17400Bottom 8150Support 12200Resistance 17500BSE moved up from the bottom of 8150 to 17400 where it broke the major resistances. Italso touched our target of 15450 twice since 5
th
June and even superseded upto 17400.The target was stated in our article of May’09. There is also gap formed at 12200 and11400 levels. So, index level from 11100 to 12200, become the strong support for BSEand 50 to 65 % correction of the entire rally. There is also monthly gap up opening from11400 as on 4
th
May’09 and a big 17.50% gap up opening on 18
th
May’09. The gap is at12200, which shall fill at the time of correction.Sell is recommended at current level with support at around 11400 levels.
Fundamentally speaking
, emerging markets (EMs) reached the PE ratio of 8 during the bottom of the bear fall which is an indicator of over pessimism in the equity marketswhich ended in mid March, 2009. The pessimism gripped the markets all over the worldwith high negative bias which was all of a sudden. Commodity and equity markets fellsharply throughout 2008. Five year BULL market got heavy correction within the span of 26 months. EMs fell as much as 65% from the top of October’ 07 to January’ 08depending upon country to country. They bottomed out between October and November 2008. Ultimately DJIA, European markets and EMs finished their respective downfall bymid March’09. Stock markets of Brazil, Taiwan and China bottomed out earlier thanother world equity markets. The PE ratio disparity between DJIA and EMs has narroweddown rather the later has premium of 10% over DJIA. The projection of EPS for DJIA bythe end of 2009 is approximately US$ 660 (revised from 540) which discounted at PEratio of 11 would result in 7250 levels. Historical data shows that during the bear marketsin USA which prevailed during the twentieth century (Crash of 1929 and Crash of 1970swhich longed for more than 15 years), PE ratio swung between 8 and 14. The median of 

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