17500 crucial level for Sensex: Jonathan Lin

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The US markets broadly have been trading in a range for months, and this trend is likely to continue according to Jonathan Lin, Chief Market Technician, Louise Yamada Technical Research Advisors.

In an interview with CNBC-TV18's Managing Editor Udayan Mukherjee, Lin also speaks about his reading of the Indian indices. For Sensex, he says, 17,500 is a key level to watch and for Nifty it's 5,300. "Those will be the first warning sign for the bourses to start to suffer some profit taking-where you may want to lighten your position, perhaps take some hedging positions."

Commenting on gold, he says, it may see further upside. "We have target of USD 1,350 and 1,500 per ounce for gold."

Here is a verbatim transcript of the exclusive interview with Jonathan Lin on CNBC-TV18. Also watch the accompanying video.

Q: How do you see the US indices moving from here because the S&P did take support around 1,050? Do you see the Dow and the S&P moving even higher from here?

A: We are not quite enthusiastic as the market was last week, as you can see the European sovereign debt woe has knocked the market down. Now, if you zoom out and look at the bigger picture, the US market has essentially been trading sideways for months. The Dow, for example, expanded from the earlier low roughly around 9,600 or so, and the recent high around 10,720, that trading range action is also appearing in several other developed markets. So that trading rangebound action may continue for a while.

Besides US, you have the UK, France, Switzerland, all portraying similar price profile, it will appear that the problem in Europe is definitely affecting the market here. So, our market is not immune to the sovereign debt worries over there. We do believe that trading rangebound action may continue and that's both good news and bad news.

Q: What about the dollar index because a lot of the moves in this part of the world and in commodities are correlated with that? How is that looking technically to you?

A: Right now, it's trading sideways. The heaviest weight within that index is euro, which has been trading sideways as well, so we do believe that sideways trend will continue. We don't see a lot of movement just yet. With the European debt problem resurfacing sometimes the DXY would strengthen, purely on the euro's weakness. However, DXY does have its major component, which is the yen spot rate, yen has been strengthening versus dollar. So that may slow down the DXY's upward strength. We do see that as a major problem, but for the time being DXY looks rangebound

Q: You track the Indian Sensex as well. How is that looking technically after the very smart breakout we seem to have affected over the last course of this week?

A: For India, the two major indices, the Nifty and Sensex, have very similar profile. If you look at chart of the Sensex, for example, and out connect the recent highs, and the recent low, you can see an upward channel. Those highs would be the October high, the January high and the April high and when you draw a line like that, and you can draw a parallel line to that connecting the November low, the February and May low and you can see a nice gradually ascending uptrend channel. Basically, these are the parameters you need to watch for.

For more sensitive investors, you may want to draw a line, a midpoint line, between the channel and these are the levels you have got to watch out for. For the Sensex, it's a bit of a moving target, but right now it's at 17,500, that is where the midpoint of the channel is right now. I believe that will be the first warning sign to Sensex start to suffer some profit taking and so on. That'll be the first warning sign where you may want to lighten your position, perhaps take some hedging positions and so on. So that's the key point to watch.

Other than that, the gradually rising uptrend channel is a very healthy development, and gives you very easy parameters to watch out for. We do believe the uptrend channel looks like it will continue even perhaps with modest breakouts, and the channel's width is roughly around 14-15%. So, at point of breakout, counting using the midpoint you may get another 5-7% pop, once its breaks out. But again 17,500 is a key level to watch for Sensex, for the Nifty it's 5,300, give or take.

Q: What about gold, how do you see that moving from this current consolidation phase?

A: We have target of USD 1,350 and 1,500 per ounce for gold. Our long-term study suggests that gold may go much higher than that. There are several ways we arrive at that, one way will be purely technical, if we look at the uptrend channel in gold on a large scale, it points to a level of USD 2,000 per ounce and way beyond.

If you look at the fact that all the developed markets, governments seem to be printing money, this quantitative easing is devaluing most of the major currencies. So, gold as a storage of value or basically, with a fiat currency background it looks like this trend may continue for years to come.