This is what we mentioned on 25 Dec 2010

INR weakness seasonality may persist. One simple reason is the unbroken 0.618 Fibonacci support at 44. Price confirmation is king. Till INR breaks 44 low we continue to look atleast at a multi month weakness on INR against USD, even if not primary. Above this we don't see the move down from 2009 top as a clear five. Markets have enough capability to burn time in stagnation or weakness. The ongoing complex corrective could just persist till H1 2011. What does this tell us about equity? This tells us that Nifty VIX broad basing formation should not be ignored as equity could surprise early 2011. And since we are in larger complex corrective in Indian equity also, performance cycles (relative performance) should be used to reduce out of overstretched sectors and accumulate into best potential outperformers.

The above view had a forecast for the Rupee and the stock markets. Now Rupee is up and markets are down. The other key observation was that seasonality could have a polarity. Some Q4 inflexions strengthen the INR on a primary degree and the subsequent Q4 inflexion weakens the INR. This is no magic, seasonalities are about phase changes and markets just have two phases, a trend and countertrend phase. We can call it positive and negative etc.

Today we have taken the time ratio for these inflexion points. Since time has statistical properties, the time ratio proportionality can be seen in INR Q4 inflexions too. Between two subsequent periods, one can observe equality, 0.6 or 1.6 ratios. Now if we should project these ratios in time INR could weaken against the USD till Dec 2011 or till Dec 2013 to attain this proportion. This is clearly beyond our Sep time forecasts for the market and an extended negativity.

Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research