CLSA’s Laurence Balanco On Equities, Dollar And Bullion
S&P 500 is on course to record its first monthly slide since March, and CLSA’s Balanco sees little signs of the correction abating
Equities across the world fell to their lowest since August in the week ended Sept. 25, as investors weighed prospects of new aid to lift the world’s largest economy, renewed lockdown in Europe and the outlook for the coronavirus pandemic.
The S&P 500 is on course to record its first monthly slide since March, and CLSA’s Laurence Balanco sees little signs of the correction abating. After breaking below its below 20- and 50-day moving averages, the benchmark is seen taking support at 3,191-3,200 area, he said.
“While this shelf of support could provide the opportunity for another rebound attempt as long as price action remains below the resistance provided by 50- and 20-day moving averages at 3,347-3,392 area, the risk remains to the downside and a likely test of key support provided by the 200-day (long-term) moving average, currently at the 3,102 area,” Balanco said in a report.
Dollar Index’s Upmove
The dollar index has reversed after five straight months of losses, and is set to post its highest monthly gain since November 2016. The “relief rally”, as termed by Balanco, may take the index as high as 97.73 before resuming its downtrend.
The price action in the week ended Sept. 25, according to him, has seen the DXY accelerate higher, breaking above the 50-day moving average, and confirming the tactical low setup that targets a move to the 95.50-97.73 area. This target or resistance zone is a confluence of the 200-day moving average and the underside of a long-term trendline (from the lows of June 2011), he said.
“From a long-term perspective, such a bounce should form a lower high in the 95.50-97.73 range in an ongoing downtrend that ultimately results in a break of the support provided by the February 2018 lows.”
Precious Metals Rally Remains Intact
Gold and silver prices slumped 4.6% and 15%, respectively, to post their biggest weekly loss since March. While the selloff last week was greater than expected, Balanco remains bullish.
“While this decline is deeper than our original expectation, we still view it a correction within gold’s long-term uptrend which has been unfolding following the breakout from the 2013-2019 basing pattern rather than a major reversal,” he said, adding CLSA continues to prefer accumulating the yellow metal anticipating its long-term uptrend will resume until it breaks the level of $1,775.
Balanco also prefers accumulating long position in silver in anticipation of resuming its original breakout.
The sell during the week ended Sept. 25 has seen the silver drop back to the $23.00-23.58 zone with major chart support sitting just below this level at the $19.54-21.09 area, he said. “While we have not been anticipating a test of this support zone, as long as it remains intact we are still anticipating another advance phase to the $32.00-35.00 area, which is the upside objective for the 2014-2019 base breakout.”
Range-Bound Trade For Nifty
Indian markets could likely trade within a broad 1,000-point range after last week’s sharp selloff, according to Balanco.
“This breakdown supports a downside target of 10,590, which sits below the 200-day moving average and August 2019 low at 10,646,” he said. “At best, this action leaves the Nifty consolidating within the boundaries of the December 2018 to March2020 trading range which unfolded between 10,500-10,600 and 12,118-12,470.”
