Monday, December 28, 2009

Market Analysis Before New Year

Dear Readers,

Equities rallied last week almost everywhere in the world, almost giving an upside direction for New Year 2010. There are few important things to note though. I will put my views on the possibility of breakout on upside looking at technical indicators.

Dow Jones Industrial Average:

This most followed index did manage to close above 10500 (weekly closing) which was proving a big resistance so far for almost a month. However, volume does not confirm a breakout but I give it benefit of doubt as last week was short in duration and the day it closed above this level, had half day's session. However, the daily closing on Dow Futures does not suggest any breakout as the close and high, both were below previous ones. Unless there is clear direction from both the futures as well as index, we should be careful.

S&P 500:

This is the index I follow most and in my opinion its far better to look at S&P 500 chart than that of Dow Jones Industrial Average. The S&P 500 index managed to close higher both on weekly as well as daily time frame. Volume has not confirmed but again this may be due to the shortened week. The S&P 500 Futures has also closed on new year highs both on daily as well as weekly time frame and as of writing this post, it is trading marginally higher near 1123. I guess there can be more upside in coming days.


This index had already given a clear breakout almost on last Monday and had gone up only higher since then for five-six consecutive days.

Indian Markets:

The S&P CNX NIFTY index of India also managed to show a breakout kind of move on last week closing. This is the highest close since April 2008 and came on the clouds of rising inflation and worries that RBI (Indian Central Bank) could take steps like raising interest rates. This week will be acid test for for this breakout.

Now, let me share this interesting thing I observed. For few days and even weeks I saw US Dollar and equities rallying at the same time! So far it was taken for granted that a strong dollar implies weak equities but that has not been holding for some time. Last time this happened was during late Nov and early Dec of 2008 and we know what happened thereafter - there was a decisive change in trend of both equities and US Dollar. Now, this indicates either there is going to be a change in direction of equities OR this rally may be on strong fundamentals! which I doubt. Let us see how things pan out in new year 2010 which will be an important year for all market participants.

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