Indian Rupee

Tracing the USD/INR price movement ever since its break above the trend-line a year back, one finds the unfolding of the typical impulse Elliot wave pattern.

In the above evaluation, I’ve applied 2 major rules of Elliot wave principle , viz.

• The bottom of the fourth wave, which is a pullback, cannot overlap the peak of the first rally. If it does, then it’s not a fourth wave.
• The third wave is never the shortest wave


If the above wave count is right, it appears that despite things looking extremely bleak for the rupee, we may in fact be in the final 5th wave of the impulse that should set the stage for a 3 wave corrective rally (rupee appreciation) that should typically ensue to complete the elliot pattern.

Where the 5th wave would end is still at the moment a wild guess, given that there are no overhead resistances to refer to, but by applying Fibo ratios to project, the following emerges as key probable areas of topping:

53.30, 54.50 and 55.40

OIL

Oil has staged a near perfect reversal of the multi month trend that was in existence since its peak in late July 2008. The above chart resembles very closely to the USD/INR fall from 47 to 39 and its bottom there.

Further confirmation –

• for the first time since Aug 2008, price has managed to close above the key 55 day EMA for 4 consecutive sessions.
• there is also a double bottom formation which puts the immediate minimum target at $65

Since price has reversed a multi month trendline, the momentum and velocity of the impending rally in oil is likely to be very high.

From a risk management perspective, it would be ideal for oil companies to hedge out their exposure for the next 6 months.

Lots in a NAME!!!

It’s quite uncanny that the direction of the financial markets and particularly the US economy is contained, atleast in part, in the three letters that define the most watched barometer of confidence. Is it any wonder that this benchmark average is named one letter short of the impending direction of the stock markets…….. DOWn.

Mirth aside, the chart pattern on a multi year framework beginning with the Great Depression paints a scary Double Top formation - a pattern that is seen by chartists as the most reliable sign that a deep downside attack is in store. By this pattern the Dow should have no hindrances in testing anywhere between 3500 and 4000 which coincides with the long term trendline.

Sadly, this only underscores the fact that the United States may be about to encounter one of the worst scourges of Asset price deflation.

I’m writing at a time when a haunting and seemingly never-ending dollar strength is playing out in the most vehement and convincing manner across the board except gold. The break of 7182 in the DOW Jones, only means that there will be further bank collapses, more bail outs and more dollars being pumped in. And this in itself could be the prelude for a precipitous fall in the dollar value, simply because the US would have printed so many dollars like there is no tomorrow only to find a deluge of dollars and its value evaporating in no time.