Indian Rupee Hits an All Time Low 8/25/13

The Indian Rupee hits its all time low last week around Rs65.56 to 1USD and then settled in at Rs63.30. Just a few years back it was in the Rs 45-50 range. Being a technical analyst and not a fundamental trader, it is easy to say I do not care why; but that is hard to say in this instance. When I left India many, many years back to come to the US to do graduate studies in Engineering I remember the Indian Rupee being around Rs 7-8? What has happened since? How is it that we can run up massive debt in the US and still have the INR declining against our currency?

India has only about 7 months of federal deposits and that number is shrinking due to the huge demand for oil and gold, both of which require US Dollars to purchase.

The Indian psyche has always favored Gold as the best hedge against all disturbances. When things go south, Indians buy Gold to hedge. Then there is the wedding seasons and families having to buy Gold as part of what they give the newly weds for their protection. India also imports 80% of their oil. Not a good situation. Add to that the US starting to look at reducing easing and even raising interest rates down the road, and we have a major problem.  

India has to borrow and invest into its infrastructure, and resolve how to reduce its oil dependency with a strong energy policy from the Government - using nuclear power, and more fuel efficient automobiles. More borrowing has the likelihood of weakening the currency and that is the fear we are seeing. Borrowing to buy gold and oil will not solve any of the structural problems and help investment, unless the weakened Rupee makes goods cheaper for foreign investments. In a democracy with political parties each wanting political power, it is much more difficult to steer the ship in the right direction, getting a majority support. It would be much easier in a country like China where the party could decree it.
I am a strong supporter of democratic principles, and I hope the country’s leaders are able to sort this out, because India has a lot to offer the world.

This week I saw continued strengthening in Gold and commodities. Not a huge amount but enough to where I am in DBC now, a commodity fund. The Nasdaq 100 has still not broken down, while SPY is showing some weakness but still hanging in. Emerging markets have shown a weakness and bond funds continue to decline.

Where will we go from here? I will follow my charts for direction…

Gold is Glittering Again 8/17/13

When do I say a stock is going up? When the stock is making higher highs and higher lows, then we can say it is going up. When is a stock going down? When it makes lower lows and lower highs.

It is normal for traders to take profits when a stock gets overbought, which causes some selling leading to a small decline. Buyers come back after a decline and push the stock back up, achieving the higher high and higher low.  I believe GLD is starting to do that. It just crossed its previous high, and a likely scenario for me is now to wait for a pullback to enter GLD.

I use shorter cyclical indicators (see the black line in the lower chart pane) to tell me the extent of pullback. It is impossible to time it perfectly but after about 6 days of consolidation and pullback, the black line on my chart drops below 20 and that is usually a good place to look at re-entering. Using a buy stop order, above the previous day’s high is a nice way to enter. What that means is that I would place an order to buy GLD if the previous day’s high price is exceeded. That denotes a strengthening in the stock.

This is what I will now patiently wait for, and hope GLD does not run away on me!

Meanwhile I have had an exit signal on the Dow Jones 30 ETF known as DIA. This is a good time to cut back on positions and back off, and only re-enter when the down signal high is exceeded or when the system flashes a buy signal. Gold is often used as a hedge against market declines. Bond funds are clearly not working as a hedge against market declines anymore since interest rate hike fears are bringing bond funds down. I am completely out of bond funds and have been for a while and anyone reading my blogs can go back and see when I posted those exit signals….

401K Monthly Analysis and Market Direction 8/11/13

The market direction remains long. See chart on SPY (S&P500) below. SPY is an ETF Exchange Traded Fund that can be traded like a stock. It includes all the stocks in the S&P500 and is a good proxy for market direction for me.

In my current employer’s 401K, best choices for this month are Fidelity Blue Chip Growth, WFA SPA Midcap VL, Fidelity Large Cap and Royce Opportunity. I stay away from Royce only because of the high redemption fess they charge unless you stay in the stock for a long time. It is volatile but also offers the fastest opportunity for gain (or loss for that matter).

In my previous employer’s 401K, the best selections for this month are Vanguard Explorer Admiral, Fidelity Growth Co. and Artisan Midcap VL Inst.

Included below are some charts on SPY as well as some of these top leading funds mentioned here.

At this stage, the conservative side of me is wandering towards articles about a market crash like in 1987. During that year the market also moved up for a long time before it crashed and dropped very rapidly. How can we protect against such a possibility?
One approach is based on options. Sell call spread options on SPY or the DIA (Dow Jones 30 ETF) and use the proceeds to buy put spreads on the same. This approach nets you less money than buying put options outright; but in case the market stays in a slight upwards slope, the account would not lose value from holding put options that might expire worthless.

Another approach is to buy the Volatility index like VXX and hold it for a while. If the market suddenly flares up due to say terrorist activities, then VXX will spike and help offset some losses. The only negative is that I see the VXX generally falling and finding a bottom is tricky and risky. The recent US embassy closings in many Middle East countries suggest that there is actionable evidence that some terrorist action is being planned against the US. I think I will go ahead and place some offsetting positions on Monday as outlined above.