Market not out of woods yet, may decline further: Louise Yamada

India's benchmark indices have witnessed some respite from incessant selling in the first few days of 2012. However, analysts have cautioned against early optimism, suggesting that the worst might not be over for Indian equities yet.

Louise Yamada, managing director of Louise Yamada Technical Research Advisors, LLC believes that the market may witness a rally, but it's not out of the woods yet in terms of potential for further decline.

“Indian markets have witnessed slow erosion off late as the Nifty has broken its support level already,” Yamada said in an exclusive interview to NDTV Profit.

Below is the complete interview. Also watch the accompanying video.

Q: What is your outlook on Indian market for 2012? Do you think the market is close to bottoming out or do you think it is headed for a collapse?

A: I don't know if i would define it as a collapse, but these markets have been on slow erosion. Indian market did break the two- year support level when the Nifty went to 4700, which was a very important and defining level for the Nifty.

On the other hand, if you could get over the November resistance, 5200 would be a plus and the next comes in at 5500, which was the original support level that was broken in India. So, the market may see a rally, but it's not out of the woods yet in terms for potential for further decline.

Q: Do you think the US market will make new highs in 2012?

A: It is a little difficult to decide at the moment, we are seeing US to continuously outperform the world. However, within the US, the Dow is the continuous outperformer. The NYSE hasn't moved up through its 200 day moving average, which is still declining nor has it exceeded the October peak.

So, it is really the Dow and the large mega cap stocks that have been doing well. If they can get up through 2011 peak, then maybe the index can go higher. A lot of the underline indicators suggest the rally could continue in the short term, but the longer term work has some hesitation.

Q: What do you make of the 20 per cent plus bounces in European markets over last few weeks? Do you think they are just synthetic moves before markets collapse once again?

A: From a longer term perspective, the indication suggests that there could be another declining phase at the moment. There could be some kind of establishing.

Q: What is your view on the euro and dollar for 2012? Do you think the euro will collapse once again?

A: We have a self-signal on the euro with a possibility that it could continue to decline towards 125 and the former low at 120 would be the support level. In a wide three year trading, the euro has been trading in a range or 1.2 and 1. So, it's well within the historical boundary, but in the short term, it could go a little lower.

Q: What about the US dollar index? Is there a chance that it strengthens rapidly from here and what does it mean for commodities, especially for oil?

The US dollar is on a buy signal and achieved our first target at 80. Our second target range is between 81 and 83, which is where the dollar has been pushing. At the moment, it looks as it could remain strong at least going sideways and we don't see the immediacy of the renewed decline although our longer term work suggests weaker dollar.

However, it may not happen in the near term, so the dollar rising has had a little bit of a conflict because oil has been a little flat and trying to rise. Gold has been flat in a consolidation after a 20 per cent decline. Although the usual correlation between the dollar and the commodities seems to be maybe in conflict, a lot of these markets are in a transition phase, even when oil, gold and dollar are trading strong.

Q: What is your outlook on the Chinese market?

A: The Chinese market has been in a downtrend for quite some time, especially since it broke the three-year support level. At the moment, any little rebound rallies we would take very cautiously because the possibility for further decline in the Chinese market is still intact and that to in a long term sell signal.