Sunday, October 26, 2008

Market Forecast -- week of Oct 27 - 31

Global stock markets continued their downward spiral last week as investors weighed the implications of a prolonged worldwide recession. US stocks lost 6% as the Dow closed Friday at 8378 while the SPX stood at 876. This was largely in keeping with last week's mostly bearish forecast as the market prepared itself for a retest of the Oct 10 lows this week with Friday's harried decline.

This week I think it is certain we will see a retest of the recent lows and in all likelihood the 2003 lows also. This may occur as soon as Monday the 27th as the Moon conjoins Mercury in a negative alignment with both malefics, Mars and Saturn. Indeed, Monday looks like the most negative day this week so it is likely we will see a close below 8000 on the Dow and 840 on the SPX. I would not be surprised to see 7500 on an intraday basis. Tuesday will probably begin negatively but there is a good chance for a rally in the afternoon in advance of the Sun-Moon conjunction later in the day. The market may rally on Wednesday but the end of the week looks quite unstable and probably negative as Mars comes under the exact aspect of Saturn.

In terms of when the interim low will be reached, I'm still not certain if it will occur this week or next week. While this week's planets look worse than next week's, it is possible that this reflects a greater percentage decline rather than the bottom of the market. Monday will probably see the larger loss and it may well prove to be the interim low, but that may also occur Friday the 31st or even sometime next week, albeit will less dramatic single day drops. More cautious investors would do well to consider covering some short positions Monday just in case Friday does not quite return to Monday's levels. And with some kind of modest rally likely in November, it may be worthwhile to take some speculative long positions during the down days this week and next.

Indian markets were savaged last week after the RBI left rates unchanged Friday. The Nifty lost 12% in a single day and closed at 2584 while the Sensex ended Friday's bloodbath at an unbelievable 8701. My forecast had been fairly bearish about last week and correctly noted that Friday (and this Monday) would be the worst day(s). I also wondered aloud if 2000 on the Nifty was a possibility now. What seemed unrealistically gloomy last week, now seems much more plausible. This is a level with some technical support dating back to 2005 and given the probable volatility over the next two weeks seems more reachable. That said, I think that the greater portion of the declines have already taken place with the Mars conjunction to the BSE Rahu. Even with the likelihood of a decent November rally, investors should be cautious as December looks quite negative again. If the Nifty manages to stay above 2000 here, say, with lows in the 2200-2400 range, it may ultimately test that support level in December. With a shortened trading week for the Diwali holiday, look for another big down day Monday with a gain Wednesday, followed by another down day Friday.

With the ongoing financial turmoil creating high levels of fear, the US dollar has taken flight. As predicted, the Euro fell below 1.30 last week and opens Monday at 1.2624. With the Moon-Mercury conjunction occuring right on top of the natal Euro Mars on Monday, look for another huge sell off, perhaps as low as 1.20 by Tuesday morning. Friday may see the Euro fall below 1.20, perhaps decisively. Even with a rally later in November, the US dollar will likely rally again against the Euro and most other currencies in December with the greenback hitting a high around December 12. The trend will likely reverse after that. In all likelihood, the above pattern will apply to the Indian Rupee also with further declines in the next two weeks of 5-10%.

Crude oil also plunged last week amidst fears of economic slowdown and the US dollar appreciation and closed at $64. This conformed well with last week's forecast for crude below $70. $60 seems inevitable this week as the Futures chart is still heavily afflicted. Transiting Sun conjoins Saturn early in the week while transiting Mercury opposes Mars at the end of the week making for very bearish bookends. Look for an interim low in crude next week somewhere in the $50-55 range.

Gold also experienced sharp declines last week on the US dollar rally and closed Friday at $730. This was in keeping with our expectations that gold is headed to the $650 support level by December, perhaps sooner. Look for gold to plunge Monday as transiting Mercury is in tense aspect with the Futures natal Saturn. I would not be surprised to see it fall below $700 then, or perhaps later in the week. With transiting Ketu conjoining the natal Moon in this chart, look for gold to fall further in the next two weeks. The retest of these early November lows (perhaps around $650) will occur in mid-December.