The Hindu Business Line : Top-of-the-mind strategy factors

As the Director of Fidelity’s global team of technical analysts, Mr Jeff Hochman tracks a wide range of asset classes from a strategic perspective. Here’s his take on a few top-of the-mind factors:

S &P 500

The index has been forming lower peaks and troughs since October 2007.

But the recent low at 1270 is significant since it occurs at 38.2 per cent retracement of the previous long-term move. It can stay volatile within a range for a few months as it builds a base from where it can move higher.

Although the recent lows are not likely to be breached, if it does, then the index will move down to 1150 or 1160 that is the 50 per cent retracement level of previous up-move.

Fed’s rate cuts

The interest rate cuts by the Federal Reserve are not influencing the stock prices now.

There could be a lag of about nine months before these rate cuts begin to affect the various aspects of the US economy and the stock markets will be ahead of the economy in factoring in the eventual benefit of the Federal Reserve’s action.

A recovery in stock prices is therefore expected in the second half of this calendar year.

The Nifty

The Nifty is not in a long-term bear market yet since the long-term trend-line has not been penetrated.

Two monthly closes below the trend line would be required to make another leg of the down-move unfold and the index can then fall to its 2007 lows. But such a fall will provide a good buying opportunity.

Liquidity

There is a liquidity contraction at present. But global investors will resume investing in to India soon as they cannot afford to stay away.

Commodities

Most commodities, with rare exceptions, are at multi-year highs. The outlook on commodities is positive. Gold and silver are not at a multi-year peaks when viewed on inflation-adjusted charts.

There is room for these metals to move higher from these levels. Copper is consolidating sideways after a multi-year bull-run. Aluminum has just ended a corrective phase.

Crude oil

Crude is moving in an upward trajectory. Though it is consolidating between $85 and $100 since November 2007, the commodity is expected to move past the three-digit mark over the long-term.

Japanese Yen

The US Dollar to Japanese Yen exchange has a base at ¥100. The currency would appreciate if the Yen carry trades are unwound but the Bank of Japan is likely to intervene around ¥100 to arrest the appreciation.

Indian Rupee

The depreciation in the US dollar-Indian Rupee exchange rate halted in 2002 and the currency has been appreciating since then.

The currency tried to hold the Rs 43 level for a few months but this level was penetrated in March 2007.

The next level where the currency can fall is Rs 36, since there is no interim support on the charts. The currency is expected to get there some time in future. On the way up, the Rs 43 level will act as a ceiling.

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