Friday, December 30, 2011

EOD Analysis for 30th December 2011 and Outlook for Opening Session of 2012

As usual, a day after expiry and first day of new series, volumes dropped significantly with OI in Nifty futures hovering around 20-21 million for most part of the day and 1 million added with the falls! So we have ended the year 2011 with a drop of about 24% on the index value and still no signs of the correction being over.
The close below 4640, a very critical support of the near term has been broken.
IMHO, we should be able to see the bottom and a swift reversal within the next 3 to 4 months.

As usual, as far as trading is concerned, need to monitor levels on a day to day basis but as far as investments are concerned, one can start buying in tranches as I had mentioned earlier this month as well. Somewhere between March 21st and June 21st, we will see Nifty moving out of the complex diagonal triangle it is trading in for the last 13 months now. IMHO, we should be able to see at least 5200 by Diwali 2013 and by Diwali 2014 we will be able to finally create the new high on the bourses.

For Monday i.e. the first session of 2012, the critical supports and resistances IMHO will be

Supports: 4550-4590-4620
Resistances: 4690-4728-4750-4800-4840

We should not forget that the close below 4690 yesterday has confirmed a visit to at least 4550 in Jan series if not more. Short-covering can only take Nifty upto 4800-4840 beyond which fresh longs are required.

Hope year 2011 proved good for you in trading. I had the good fortune of meeting a lot of good people along the way and thanks to our mahaguru waverider, learning the art of sharing. Some pests did disturb with a lot of mud slinging but all I have now is an attitude of gratitude because all the irritating mud slinging pushed me to spend more time with TA toys and materials. So aall izz well on that front

With that I thank all of you for supporting the team and taking the time to read out our blogs despite the fact that the accuracy levels are still not as good as we expect them to be. I would like to wish all of you a very prosperous 2012 and regardless of what happens on the bourses, may your trading equity swell on the basis of profits.

Happy New Year 2012 - \-/ \-/ \-/ Cheerz

Thursday, December 29, 2011

EOD Analysis for 29th December 2011 and Outlook for 30th December 2011

Finally on expiry day, the volumes cropped up; the morning session opened with OI in Nifty futures hovering around the 26 million mark but then every 30 minutes, slowly increased by about half a million taking OI in Nifty futures to almost 33 million in the last hour. Surprsingly, VIX spooked to 27.3 odd levels initially but despite the sell-off in the last hour, it cooled below 27 levels! [I love my India....]

The close below 4690 has confirmed a technical sell for a target of about 4550 at least [looking for 4450 personally]; again would like to repeat that it may not follow immediately but the stage is set. 4640 provided the interim support so a short-covering rally can take Nifty upto 4840 odd levels even now; but every rise can be taken as an opportunity to short. It is near certain that we will revisit the 4550 [or perhaps even 4450] prior to Jan expiry.

Most heavy weightage dates for Jan series are 6th, 9th - 12th Jan '12 where a lot of volatility can be expected in price action. Total weakness to be confirmed after a weekly close below 4509 that will open much lower levels. On a fundamental level, this cannot be ruled out as valuations for major Nifty stocks on PE basis are still higher especially in FMCG and IT segment; with the results season around the corner, one can expect downward revision in prices and further rationalization of PE multiples.

For tomorrow, 4550-4580-4640 will be expected supports; 4690-4720-4750 will be expected resistances for Nifty.

To the extent 11800 on weekly basis and 12k on daily basis intact.on Dow, one can expect a surprising upside to 12400 odd levels. 2 consecutive closes below 11500 and it is adios to higher levels for a long time.

The sharp correction in Gold is indicating margin calls on hedge funds IMHO; caution advised for those long in Gold and Silver....accumulation band for gold on Comex levels will be USD 1300 to USD 1450 per ounce. Silver only to be accumulated in lower 20s.....per ounce [hope readers will remember that the bearish setup for Gold and Silver was highlighted when Gold was over USD 1750 per ounce and Silver above USD 34 per ounce]

Wednesday, December 28, 2011

EOD Analysis for 28th November 2011 and Outlook for 29th November 2011

Volumes finally came in today in some proportion; Nifty opened with OI in Nifty futures @ 25 odd million but picked up another 3 million in the last 90 minutes of trade. No change to the levels and outlook.

For now, bulls can breathe easy that 4690 survived on EOD basis but expiry manipulations may give a lot of power to bears. 4840 is the critical level that bulls need to take out and right now struggling to cross over 4800 also! Keeping fingers crossed to see how expiry pans out.

Tuesday, December 27, 2011

EOD Analysis for 27th December 2011 and Outlook for 28th December 2011

2 days to go for expiry and still no trace of volumes; OI in Nifty futures still hovering around the 25.5 million mark in the morning session and then notching up to 27 million towards the middle session and 28.3 million odd at close [just rolling over of positions I reckon and a good way to suck out options premium]

Critical levels remain unchanged and outlook remains unchanged.

Recap:

A close above 4840 opens for another 144 points UP
A close below 4690 opens for another 144 points DOWN

A Weekly close below 4509 will spell doom on the bourses.

Monday, December 26, 2011

EOD Analysis for 26th December 2011 and Outlook for 27th December 2011

Despite a positive start to Nifty's expiry innings, volumes still not showing up; OI in Nifty futures just hovering around the 27 million mark for most of the day. This is marginally high but not enough to sustain upsides. VIX has cooled down a bit compared to the earlier part of the series but no solace here as it just takes 1 bad session to spook off VIX.

In terms of EW perspective, at the sub-sub levels, I am in agreement with Raghuji as far as direction is concerned but more pragmatic on price action.....; it is a corrective of corrective of corrective.....A close above 4840 can open Nifty for another 144 points to the upside and a close below 4690 can open Nifty for another 144 points down. In between, the band will be a plain trading band to suck options premiums IMHO [and it is a good range to trade via futures].

Critical levels remain unchanged and markets are not out of woods. 4509 on a weekly closing basis is still very crucial; I have stopped making expiry predictions as it is not my forte and I have had enough instances of flops as far as expiry levels are concerned; Now, I just take price/volume action and try to hone down critical dates with high weightage.

I have received some requests on high weightage days for the immediate future and I am hence pre-poning listing them out for now; direction is still a big ??? but the high weightage dates in the near future are

6th Jan, 9th Jan, 11th Jan and 12th Jan 2012: extremely high alert dates as lots of stop losses can get triggered on either side in this time frame.

I don't normally encourage too much options trading but as far as Jan series options are concerned, my bets lie with 5000 Jan CE and 4500 Jan PE. One of these 2 will be a big bambookaat making the loss on the other side worth ignoring ;-) As usual my disclaimers

A] Don't put more than 30% of trading capital in options
B] Ideally, keep enough margin to trade as per wave rider's [wwji] formula of building vertical spreads to limit the risks on capital.

Saturday, December 24, 2011

Euro-Contagion: A Holistic Perspective

It has been more than 2 years that we have been hearing about a potential Euro-contagion and significant risks that come along with it. I am sick and tired of the cliched 'Stocks Rise on ECB/Euro hopes', 'Stocks Fall on ECB/Euro hopes' continuously for the last 3 months or so. As I have been putting up my hypothesis, again would like to remind readers that the Sovereign Debt per say is not much of an issue. All the major Euro-areas put together have an estimated 5 trillion dollar debt [based on what is published on Bloomberg and Yahoo Finance these days], that no doubt is a short-term issue but not something that will pose big challenges. I have myself lost count of the number of instances that I have mentioned that there is enough historical evidence that countries have defaulted and yet bounced back as shortly as 12-24 months as far as Sovereign Debt issues are concerned.

On a fundamental level, this could be a severe problem no doubt because the debt that is about to mature in the next 6 months in the Euro region pertains to notes issued 10 years ago i.e. they are about to mature and the concern is if there is a problem to service debt that is 10 years old and the countries are now facing challenges to service that debt and issuing new debt, this could be a recurring problem. That is true and the bottom line is that this has been happening for more than 70 years now with all countries of the west. Again, readers must be aware that Debt as a Percentage of GDP is far higher in case of US, UK, Japan as compared to emerging economies like BRICS, or for that matter the European nations. For the record, these countries have Debt to GDP ratio in excess of 400% or 500%!
Is debt default something new? An emphatic no!
Russia and Brazil of which Brazil changed the entire economic landscape with one short term shock of 6 months. Russia has done it at the back of oil; as recently as 2009, we had Dubai struggling and Abu Dhabi made sure things did not go out of hand [and of course internally extracted its pound of flesh] The most significant difference between the earlier instances and current instance is excessive financial engineering.

Lehman Brothers and the entire mortgage crisis of 2008 was a result of financial engineering and yet again this time the problem is financial engineering on derivatives on sovereign debt than sovereign debt itself. Considering the fact that currency and fixed income derivatives can be leveraged anywhere between 10 and 400 times in the market, the excessive  speculative bets lying in the underlying sovereign debt is what is keeping the markets jittery. It is a complete lack of governance and regulations that any punter can put at stake some money and place bets on who is going to default first. Even now, nobody knows what is the exact amount at stake that is lying in the bets, very nicely conjured up as 'Credit Default Swaps', 'Debt Swaps' etc etc etc that are the real source of the problem.

Is there a way out - yes there is and the most simple way is to make all swaps, options, swaptions null and void outright as far as sovereign debt is concerned - period. It is a one time shock that won't last more than 12 months and cleanse up the entire system once and for all. After that, it is just a matter of looking at individual countries and figuring ways out

[Please note that these are generalized opinions on countries and I mean no offence whatsoever to any person of any nationality. I expect readers to appreciate the spirit of this note than getting lost in heuristics]

1] Greece: This is very prblematic; the Greeks want everything on a platter without bending their backs or mending their ways. What is so special about being a Greek government servant that entitles one to 5 weeks of paid vacations and exhorbitant pensions etc etc etc? What are the resources at hand? How do we get productive and make something meaningful out of the economy? Unless they get their act together collectively in this regard, Greece will be a problem forever. This is one spoilt child that must be abandoned completely until habits do not show remarkable amendments. No Troika monitoring nothing - just abandon this child and let it pledge all that it has [most of it is already pledged] and ask the government to go back to Goldman Sachs with whom it made ponzi schemes of all formats. Let them sort it out.

If Indonesia, Thailand could bounce back even after such a significant currency crisis with excessive devaluation, I see no reason why Greece can't do it. Overnight, the currencies of Indonesia etc got devalued by a factor of 1000! There are governance issues and it is very common to see some major natural disaster in the North Western Gulf of Indonesia every year. Yet this country has managed to marshal resources as a whole. The country exports a lot of furniture, apparel to all major retailers of the world and has a booming local market as well for consumer goods. It does manage to attract a lot of tourists and expatriates. The reason is simple - people realize the importance of living within means, being productive and they do venture out in other areas of South East Asia for employment opportunities, most notably in the real estate development of Singapore / Malaysia, in the mines and oil fields of Malaysia - simple.

2] Portugal: This country is already showing remarkable signs of improvement and will get better and better slowly. Some factories have started producing again, shops are open all 7 days a week now and hence opportunities are coming up. Temporarily wages have gone as low as 400 Euros a month but there are people who realize the importance of working and getting out of the crisis. With Lisbon airport as a major gateway airport to Latin America and the close ties with Brazil, slowly but surely this nation will get out of the crisis pretty soon. As I had mentioned earlier, one thing gaining a lot of popularity in the manufacturing segment of Europe as a whole is proximity sourcing and Portugal is fast encashing opportunities in such areas [Poland was an example that cashed in on low wages and skilled work-force to get a fair share of the ITeS business and was pretty successful as well]. Portugal can do it for manufacturing pretty well.

3] Ireland: Again the government and people both are very clear about the fact that they need to make amendments to their ways and move out of the crisis. For the short-term, if there is a demand slowdown, of course they will suffer but then the Irish in general are pretty strong minded people. If push comes to shove, they have it in them to do what it takes to get out of the problem. Skilled workforce, English speaking skills, and manufacturing prowess - it is a shame that it got into this kind of trouble in the first place and frankly, my personal opinion is that the Irish are far more deserving than Greeks and must be allowed to participate in the Bond Markets as soon as possible.

4] Italy: The demographics here are mixed as there is clear bipolar sections of society here. One similar to Portugal and Ireland that is very clear that amendments are critical and the other more like Greece still living in the false glory of the past. The bottom line though is that there is enough talent and agricultural resources in this country to get it back on the path to success. It will not happen overnight but the talent is there, the resources are there. Governance is an issue and probably for Italy, rather than allowing it access to Bond Markets as a whole on sovereign basis, one could be selective with corporate bonds, specifically of manufacturing companies and it can wriggle its way out. One must not forget that when it comes to productive farming using conventional methods, the farmers of South Italy are actually the ones who migrated most to America and transferred the agricultural cultivation knowledge there!

Italians are still pretty good with design, be it furniture, fashion or automobiles. Regardless of how badgered Fiat's stock prices are, one cannot take credit away from Fiat for the robust engines that roll out of this company's factories.

5] Spain - The election has been successful with a new ministry in place. The government leans a bit to the right but this change is for the better and one must not forget that it was this government that actually got Spain into the EU and Euro in the first place. Again, plenty of agricultural resources [vegetarian as well as non-vegetarian] and there is a silver lining for a lot of corporations if they really take a holistic view. the real estate market, both residential and commercial is badgered to the core and still there is room for another 15% to 20% correction. Spain amongst European nations has been second to the Nordic European countries when it comes to Clean and Green Energy with a lot of investments in Wind Energy. The fact that most of the unemployed workforce is now about to come to an end to social security grants and already unemployment is at a record high, it is potent ground for car makers and engineering goods manufacturers to set shop here. Moreover, tourism will be an evergreen industry for Spain.

So in a nutshell, just as in case of Italy, Spain has the potential to wriggle its way out of the crisis as soon as possible. A major reason why prospects for a Spanish default is highest at the moment [whilst all are looking at Greece and Italy as the smallest and largest] is that it is making a grave mistake by auctioning short-term bonds. With a clear mandate of cleaning up the banks' balance sheets and forcing survival of the fittest, Spain actually can explode like a dynamite as far as Euro-contagion is concerned and one can be pretty sure that the newly elected Rajoy of Spain will do exactly what Brazil did a couple of decades ago. They should be actually auctioning longer maturity bonds even if it means paying a slightly higher yield than shorter term low yielding bonds that will only compound the challenges.

6] France: Again grappling with a lot of challenges, and this is a very strange country one must say. Yet another example of a country living in the false glory of the past and the workforce here is quite problematic. Strikes are as common as eating cakes for dessert, too much state control on healthcare costs whilst ground reality is that there is not much talent left in terms of doctors and nurses in France and likewise in Education. There is not much talent in the workforce pipeline either and there is a huge chunk of population in retired status and they have been promised a host of benefits as far as state pensions are concerned. It is not possible to go back on these benefits now because it was a promise made by the state and one cannot take away the fact from these old people who diligently paid all their taxes and social security obligations in their hay days of work. That the subsequent governments ruined the economic health of France is not a fault of the currently retired people.

Some hard decisions need to be taken like France that is making gross mistakes at both state levels and corporate levels. It needs to give up loss making Air France-KLM at the earliest and just retain the terminals. It is a hard decision but is the best decision as the entire mechanism is burning holes in tax payers' money and there is simply no reason to continue this business [Air India in India is being retained just to appease the political votebank and for personal gratification of politicians in siphoning money off contracts] Air France is a classic case of retaining 'national pride' and 'hoping' that things will turn around in future. A better alternative would be to just retain the airline as a freight carrying airline and charter out passenger aircrafts.

As one can see, for all PIIGS nations with the exception of Greece, there is no problem as far as sovereign debt is concerned. Then why all this ruckus that keeps buzzing around all over the place? In fact a few days ago, the central bank of France raised a valid question to rating agencies and fixed income markets overall - Why point fingers at France when US, UK have almost 500% debt to GDP ratio [well as usual he did try to take a dig at the UK] Well with that logic, have we not seen SnP downgrade the status of US debt? Did that stop Treasuries from rising and Dollar Index roaring? This is where a partial answer to the paradox lies - US, UK, Japan all have rights to print their own money; either directly or in the form of QE or in the form of forex interventions but they do have their rights to print as much money as they want [and I agree there is of course a logical consequence to it and that is inflation; the more a country prints money without growing GDP, the greater will be the inflation - no 2 thoughts about that]

Coming to think of things in the Fixed Income markets, fundamentals and inflation logic apart - as a holder of US, UK, Japan debt, one thing is for sure - they can be redeemed with the central bank at any point of time in exchange for currency [reiterating again, devaluation, inflation, net present value etc etc etc apart - they are valid points but I am keeping out of that for now as the differential in terms of basis points or percentage is something that one can lick once and move on]

As far as the Euro debt is concerned, it all boils down to one country and that is Germany; in the hay days of the Euro, all countries could freely issue respective countries' treasuries denominated in Euros and that was no problem - to the extent they were Euro denominated, bond markets lapped them up; however, in the heat and excitement, literally everybody forgot one critical thing;

a] The countries need to grow their GDP in Real Terms
b] The authority to print Euros lies solely with the ECB i.e. Germany only

For Germany, this proved beneficial; after all, intra-Europe is a very big market for Germany; by enforcing the Euro, it retained a lot of control, helped all EU countries with cheap imports against a strong Euro and things were hunky dory. Just as in case of the dot-com mania or the US Mortgage mania, there was a mania here too - the flawed model was that things will be hunky dory for perpetuity!

My understanding of the situation is that there lies a 2 fold problem here; the EU member states assumed that regardless of what happens, Germany is going to ensure survival of the Euro and EU; Germany assumed that for a short term give-away, member countries would fall in line well before push comes to shove; as the adage goes, if you assume, you end up making an a$$ of u & me!!!

So this is where we are today; neither did member countries care to really grow the economy and just enjoyed the ride thinking ECB [read Germany] will do the needful; everybody missed out on the fact that Germany has experienced significant challenges of hyper-inflation as a consequence of money printing and hence very very stubborn to take the easy way out [and really have to hand it over to the Germans for being so insightful about the consequences of money printing; takes a lot of courage to stick to that stance especially in the West] Is it any surprise that even in Fixed Income Markets, the Bund carries so much more value than a Treasury note?

Now unfortunately that everything has boiled down to Germany - there are only 2 options

1] Print money - this option undoubtedly will put all markets and commodities on steroids but lead to one outcome and that is inflation - not just above average or high inflation but hyper-inflation. Simply because all the underlying assets [real estate, resources etc etc] in Europe are in such a badgered condition that printing money is only going to compound the challenges. With elections around the corner in Germany and such a painful experience that has taken years to turnaround will all fall apart by taking this easy option.

Moreover, it puts Germany in a very bad position for having resisted this option for 2 years, getting so many governments toppled [they would have occured any ways sooner or later] all to just end up printing money? Isn't this the immediate solution proposed when the Greek crisis had first surfaced? If this is what ultimately were going to happen, why did Germany have to hold so many countries, banks and people at large literally at ransom? This could have been done a long time ago and today probably nobody would be even discussing these issues! All markets would have been at all time highs [regardless of the plight of mango people!!!]

b] Germany sticks to its guns and says - forget it; it was a mistake to think about EU and Euro - we enjoyed it for 10 years, suffered for 2 years, tried to resolve it but there is no way out. We took the lead in starting this - we take lead in trying to end this. Rather than keep doing all sorts of nonsensical stress tests, orderly defaults, disorderly defaults etc etc, we work out an easy way out - Germany will exit the Euro and return to the Marks like in the good old days. Overnight, the DM will almost certainly end up being the strongest currency after that of the oil rich nations. No botheration whatsoever about the debt crisis etc etc - to each his own and we move on.

Easier said than done. One must not lose sight of the fact that most of Germany's output needs to be consumed. And in today's hot, flat and crowded world, whilst Germans still have an edge over engineering, it is not as if it is some razor's edge. Local consumption of German goods [i.e. consumption in Europe] goes for a toss, all tenders that normally go through a fierce battle between USD / GBP / JPY terms and EUR terms go away; for sure there is no way Germany can compete on the basis of prices - next to impossible. So whilst the entire media is talking about UK, France being marginalized basis what happened a few days ago, the decision to wash its hands off the problems [and idealogically there is no reason why Germans should bear the burden of somebody else's misdeeds] will end up making Germany marginalized completely!

Hence I deliberately said this is indeed a Catch 22 situation for Germany; Heads = Germany Loses; Tails = Markets Win!!! And regardless of who wins, the entire world will suffer consequences.

So trying to put so much context into the real content - there are no easy answers to the Euro contagion that we are talking about. Any attempt to find an easy way out is futile. So in this aspect, Merkel is right [that she is doing it for political mileage is a different thing all together] Just as in case of the mortgage crisis, yet again the root cause of all problems lies with the bankers. For a change this time with the Fixed Income bankers who have over-leveraged positions on debt for GOD alone knows how many multiples.

Unfortunately, no politician is willing to bell the cat or take the bull by the horns literally and figuratively; what haircut are we talking about on Greek debt? Was the banker sleeping or was on an overdose of substance abuse when s/he agreed to lend money to Greece? This is nothing short of what happened in the mortgage crisis; WTF is 'Stated Income' I can print out a nice 'Stated Income' sheet showing my net worth in millions and is that all that is needed for me to take out a mortage? I could probably take a private island in the Bahamas or Hawaii if it were that simple - so I simply cannot accept the tantrums that Fixed Income managers keep harping about losses on yield by taking haircuts - first of all out of the greed for yield you gave money to somebody who cannot service that debt [just like a pizza delivery boy could buy a mansion in Orange County, California - please don't get me wrong; I mean no offence and have complete dignity of labor. A pizza delivery boy is as much a human being as you and me but lending millions of dollars to him for a 3000sq feet villa?? On the basis of stated income???]

No prudent lender would do that - period; even more shameful is the fact that the bankers did all of this knowingly for personal gratification and let us not forget - it was not their own money in the first place! Hard working people, who strive to create things, earn a living and save something - it is the collection of millions of such investors.

So back to the Euro contagion - the real solution is extremely simple and straightforward - it will lead to pain for the short term but it is high time this step is taken - once and for all, forget unwinding all the long/short Swaps, Options, Swaptions and all forms of mumbo-jumbo; forget repeating an Operation Twist or whatever - just get rid of everything - the real world is simple and we dont need all these formats of financial engineering - to hoots with the bankers and their operations to ruin our lives; we have had enough. With this aspect taken care of, Germany is out of the Catch-22 challenge; it can then decide whether to stay with option1 or option2 i.e. continue with the Euro or let all countries return to respective currencies. The change will be painful no doubt but this at least get things on an even keel.

The world is not going to get over with this; people need food on the table, roof on the head and some appropriate clothes to wear. Rest, slowly but surely let the best people who battle the crisis win; As late as in 1977 Dow did not even breach the 1k mark! It was in the roaring 1980s when baby boomers took Dow up to new leaps and bounds. Likewise for the other indices as well. IMHO, it all started in the early nineties that the West realized that financial engineering could help take things to higher levels without too much effort on the economy. There is a large amount of details with exact accounts of what happened in Bob Pretcher's book, Conquer The Crash and it is a highly recommended read.

Just as it happened after the dot-com bust, the housing crisis bust, the people threating of dire consequences are bankers. And they are threatening people as well as governments with the simple mantra - if the contagion is not stopped, then credit markets will freeze for people and corporates. It is time that the governemnts keep spines erect and say to hoots with you. Rather than channel tax payers money to bail out the banks and create some bad banks to absorb all the rubbish, it probably makes more sense to create some good banks that lend out to people. The whole system needs a rejig - whether that will happen is anybody's guess.

So to summarize the whole thing, Germany is the only country that can take some action right now to resolve the issues. It has 2 options and both undermine its financial and sovereign strength. The sovereign debt by itself is not a problem. It is the excessively leveraged punter positions by bankers in the derivatives market at the back of savers money is what will blow up the Euro crisis. Let the news not fool you again and again - markets have discounted a large spectrum of probabilities; everything is not discounted on the stock market alone [and for puritans, take a look at the KBW Banking Index and it shows how markets have discounted for troubles in banks already!] The yields and spreads in the Fixed Income markets also show that markets have discounted a lot of bad news.

Why this entire verbose saga is so important for the common people? It reflects the importance of cash, the importance of choosing which bank you keep your money with [not much of a problem in India at least] It also is a clear indication, steer clear of the noise - reporters will do what they are being paid to do i.e. fill content. Deleveraging of debt is a reality - it is bound to happen and when that happens, market volatility will be high. we are talking of more than 7 decades of debt [just have a look at Brian Whitmer's video in Yahoo Finance] and about 12 years of senior debt from the inception of Euro.

Identify the accumulation band and invest in tranches - keep some cash in hand always. There are 2 extremes being discussed and as usual we have Bob Pretcher on one end of the spectrum talking about 'Deflation' and we have Nadeem Walayat on the other end of the spectrum talking about hyperinflation. I admire both of them but in the end, I am happy to have my own independent line of thought as well. I agree with Pretcher Jr on the fact that economy is contracting due to squeeze in business credit but as of now, don't agree with his call for deflation; when customers in reality start paying less for goods can we expect that to be true. I also don't agree with Walayat that markets will go to all time highs once again - it is a low probability outcome for markets as a whole.

Thanks for taking out the time to go through this lengthy article - if this has managed to give you a holistic perspective and take remedial actions without getting distracted with news flow, I will consider this effort to be a success. Enjoy your weekend and the seasonal festivities.

Friday, December 23, 2011

EOD Analysis for 23rd December 2011 and Outlook for 26th December 2011

Yet again stumped to see very low volumes; OI was just hovering around 25 mill in the morning session and VIX was hovering around 26.5-27 [volumes just added another 1 million odd towards the end]; BNF was pretty much flat in the morning and thus a relatively calm session in the morning. Yet again BNF has proved how important it is in leading the index overall. HUL continued its defensive streak in the morning whilst IT and Auto majors pretty much were again on the surface.

4 to go for expiry and hot money is keeping people guessing; critical levels remain unchanged; 4509 survived on weekly basis thereby keeping hopes open for some more upside as we move into Christmas and New Year. Critical levels remain unchanged.

Sustaining below 4640 for more than 90 minutes can trigger steep corrections to the downside
Sustaining above 4728 for more than 90 minutes can take Nifty all the way to 4800-4840 [This condition was satisfied to day in terms of price action but volumes were missing; unless the volumes come up, it is difficult to take it up and even more difficult to sustain] We opened the series with about 33 million OI in Nifty futures and these will come up for sure before expiry [May sound silly right now because its the 3rd day Im saying this but the ticker is not reflecting - all I can say is I am confident of the volumes coming in prior to expiry]

Lack of volumes can delay but not prevent the falls whilst the same certainly cannot sustain upsides. Next week being expiry week, can expect lots of price fluctuations again on either side. Not much change in Option Writers spot [in fact now tethering across 46/47/4800 for Calls as well as Puts owith no significant change in OI. Monday and Tuesday systematically can expect premiums to be eroded on either side before taking a definite direction]

Hope you had a good trading week overall; over the weekend I will be putting forth my views on

2 Aspects

1] My Views on Fundamental Analysis on Nifty50 stocks/sectors and why IMHO some valuations are still ridiculous [I still believe there is a lot of pain remaining in the system]

2] The Euro-Contagion Perspective and Catch-22 Situation for Germany

[Of course the articles would be verbose as usual as brevity in expression is not my forte]

Thursday, December 22, 2011

EOD Analysis for 22nd December 2011 and Outlook for 23rd December 2011

Well the morning session stumped me in terms of volumes rather than the price [for my EW perspective, please see the comment I posted on Raghuji's blog yesterday - nothing more to add to that for now]

OI in the morning was just 23 million and once EU session started upside came in and OI shot up by another 2 million; again a good sign that supply is coming in with the rise but still not enough to sustain. 5 trading sessions away from expiry and still no trace of additional volumes. 30-35 million for sure expected as we move closer to expiry. BNF has been shaping up well that is helping the bourses and similarly defensive counters like HUL and surprisingly INFY still holding fort. [BNF also shaped up as expected with some profit booking and then further short-covering and above the expectations of 8280 odd levels.]

Outlook remains unchanged; For tomorrow supports lie at 4640-4680 [4640 is most critical and if Nifty sustians below 4640 for more than 90 minutes, slippery slope slide can come through and lending credence to this is the Friday factor] Sustaining above 4728 for 90 minutes can take Nifty all the way to 4800-4840 with the Winter Solastice effect - need to be alert on both these sides.

Most critical aspect will be the weekly close and IMHO the Laxman Rekha is 4509; if 4509 is retained on a weekly closing basis, bulls can expect the Santa Rally whilst a close below 4509 simply means short from the highs as then the pending downside will be well below 4450 also.

[CNXIT and FMCG is a bit of a mirage right now and hence one should be careful of initiating fresh longs in these counters. CNXIT normally lags Nifty by about 3 months and hence there is a lot of pain remaining here; FMCG will be the last segment to crashland and this is the time to book profits in FMCG segment - my personal opinion]

Wednesday, December 21, 2011

EOD Analysis for 21st December 2011 and Outlook for 22nd December 2011/Food For Thought

At the very outset, I would like to pay tribute to Sir W.D. Gann for giving this simple sootra of 4 critical dates across the year; 21st March [Spring Equinox], 21st June [Summer Solastice], 22nd September [Fall Equinox] and 21st December [Winter Solastice]; My first year in the market and missed out the Spring Equinox aspect and burnt my fingers royally with the counter-trend rally; after that, courtesy some guidance of my seniors and some efforts on time analysis, touchwood got 3 swings right in 2011.

3 Additional Credits: harshalji and jacsji of mmb for always encouraging me to read materials on Fibo and Gann. Sarmaji [garipatiji of mmb] for steering me towards his classic analystical phrase 'MA - Manipulative Analysis'

Are markets out of the woods??? An emphatic NO NO NO!; significant gap-up and a relentless short-covering rally through out the day aided by positive global cues. IMHO, this is still an exhaustion gap and not a break-away gap since the OI in Nifty futures was hovering marginally above 25 million in the morning and then another 2 million added in the last hour. Compared to last 5 trading sessions, this is a positive sign as today after a long time supply has come through with the rise. As we move towards expiry, these volumes will come in and there will be roll-overs on either sides and Im looking for 30-35 million coming in regardless of which direction we move from here. Please note that today's gap-up will almost certainly be filled [need to analyze further whether this happens before or after expiry].

Was looking for a close above 8k levels on BNF and then a march towards 8200 but BNF pulled up the bourses very well and some profit booking may come through before the next upward march if any. Upto 4800 on Nifty spot and 8280 on Banknifty spot is a mere technical pullback aided by short covering IMHO.

Friday 23rd December marks an important Fibo cycle completion with the 8th Jan '08 top of 6357 [987 trading sessions from that day and hence we can expect good opportunities on Friday [direction will be determined after EOD Thursday as my learning is very shallow in this regard and also need to consult harshal bhai for this aspect]

Will be closely monitoring 4509 for this week's Nifty closing; closing above this gives in more hope for some more upside [albeit relief rally] on Indian bourses for ultra-short term and close below this is a technical signal for more pain in the system with levels far lower than the anticipated 4450!!!

Santa Rally is very much on the cards with following targets in all likelihood for global markets

FTSE - 5550-5600
DAX - 6100-6200
Dow - 12200-12400

Wishing you more trading success in days to come

As our commander in chief, waverider says 'Effort + Discipline = Success' [We are working on the 2 variables on the left hand side and still waiting for that fruit on the right hand side]

Tuesday, December 20, 2011

EOD Analysis for 20th December 2011 and Outlook for 21st December 2011

OI in Nifty futures dropped marginally today and was hovering around 24 million in the morning half and increased with the falls [a straight line fall in a jiffy] VIX still very high at 30-31 levels indicating excessive panic and higher put premiums

BNF 7800 is being poked at and a close below 7800 can invite a test of 7650 to the downside; lots of shorts still in the system that can take this counter to 8200 levels after a close above 8000 levels, aided by short-covering. To the extent 8280 was reserved, I was looking for a short-covering rally to 8800 but now will revisit this aspect only after a close above 8280. [Possible but it is not prudent to look that far given where we are on BNF right now and the sails need to be adjusted when the head winds are strong!]

For Nifty, 4509 on a weekly closing basis is the lowest level allowed this week [intra-day lows may go to 4450 also but Friday's close should be above 4509] Please refer attached longer term weekly chart for perspective. Click Here To See The Longer Term Weekly Chart. [just roll the mouse to the left side at Click here......and the link will appear]

Lots of short-covering pending but that can only take Nifty to 4800 levels [revised downwards from my earlier indication of 4994 and will revisit this point only after a close above 4800 levels] Year-end rally expected on all bourses but whether it starts from here or lower levels, we need to wait and watch. For the ultra-short term, my vote is buy the dips in a staggered fashion and with hedges of course. Unless BNF moves up and broader markets perform, upsides won't sustain and the volumes need to come in [right now volumes are not coming in for the rise but coming in for the falls which is a bad omen]

Monday, December 19, 2011

EOD Analysis for 19th December 2011 and Outlook for 20th December 2011/Food For Thought

OI in Nifty futures hovering around 27 million i.e. increasing with falls; some short-covering seen today but Banknifty is not managing to step up and this will limit the upside on Nifty significantly. 4550 on Nifty spot and 7800 on BNF spot was expected but have to concede that was expecting some upside before these levels are retested but the weakness from Friday continued [one must note that from Friday morning's high of 4800+, Nifty drifted to 4550 in 1.5 sessions flat and BNF melted over 500 points from Friday's high!]

Longs and shorts both apparently rolling over positions as far as the strong hands are concerned. Weak hands have no business in this market as hot money will chop them off regardless of which side of the trend they are in. By Thursday or Friday until Dec expiry, we should not be surprised to see a sudden surge in OI to 35-40 million regardless of trend. This is the 2nd consecutive close below 4720 and that keeps the option of retesting 4460 as a bare minimum in the near term. CNXIT still showing resilience at the back of a weak rupee but this segment will see significant corrections in the next 6 to 8 weeks. [CNXIT tends to lag by 3 months on either direction as far as Nifty is concerned IMHO]

VIX excessively high at 31 in the morning session and just marginally below 31 in the last hour with short-covering. Risk Reward ratio has tilted in favor of Longs but buying should be intiated in a staggered fashion and hedges are important. Still looking for a Santa rally to 4994 on the back of short-covering but unless BNF comes to 8200 levels, 4994 on Nifty seems a bit stretched. Excessive shorts in BNF and BNF component stocks; outlook for SBI and ICICI Bank subdued as indicated last week [and today's melt-down on Axis Bank is another shocker]

Food For Thought
From an investment perspective, SIP in NiftyBees and BankBees recommended with a 2-3 year horizon. It is better to deploy some of your funds as a self governed SIP rather than SIP through a myriad of Mutual Funds. On a Mutual Fund level, I am personally only in favor of HDFC Top 200 and SBI Magnum Emerging Market schemes for a small portion. Gold ETFs are out of question now as there is deep corrections pending in Gold and Silver will continue drifting lower to sub-USD 25 / ounce levels but even there one should not rush to acquire this high beta metal as the Roller is camoflauging the true value of Silver in INR.

Miscellaneous Wonders

There is an interesting trend to note from a mass psychology perspective of EW on market trend anticipations. [Statistical Disclaimer: Correlation can be established but not Causality] Whenever the ultra-rich start deploying funds in luxury items like yatches, excessive investments in real estate and alternative investments like art, stamps and high end excesses, it is supposedly a sign of troubles to come. I had ignored this hypothesis in my EW sojourn but some findings recently on Indian markets are leading me to pay attention to this. Kingfisher group went out excessively for yatches, sports teams and real estate in/out of India - results can be seen on the ticker. Airtel's Sunil Mittal, DLF's Mr Singh went out of the way to acquire some real estate in London - results are on the ticker!!!

The Capital Asset Pricing Model has seen some changes in the last 8 to 10 years and increasingly, markets do not reward diversification by conglomerates. The greater diversification done by a conglomerate, the greater is the negative impact on the components of the conglomerate with a longer term horizon. Returns on M&As by such conglomerates have yielded a median of -0.3% increase in shareholder value of the conglomerates and the range is anywhere between -50% to +20% i.e. markets perceive diversification as 'di-worsification' of the portfolio. I have been fortunate to be a part of studies on this and whilst I cannot spell out details on this forum, those who wish to study this case can contact Professor Laurence Capron of INSEAD who has vetted this paper with her own extensive research as well. Professor Capron has 2 decades of experience in M&A areas from a Corporate Strategy perspective, has an MBA from Wharton, PhD from Harvard and is a Senior Professor in this area in INSEAD's Fontainebleau campus.

I bring out this aspect today for the common investors in India to resist the tempation in blindly picking up diversified units of conglomerates. Bharti ventured into unrelated areas like Retail, Shipping and the charts say it all. Reliance in the end is valued for petrochem and the other counters will eventually be badgered. GMR, GVK will be valued for air terminal facilities but get badgered for power and road related projects. So far, in my limited experience with markets, only Tatas and LnT have managed to keep most of their portfolios intact despite diversified businesses [ignoring cyclical ups and downs] and one of the key reasons has been dividends and bonuses. In the long term, this is what markets reward on a fundamental basis and one should be very careful whilst creating a diversified portfolio. Buying units of indices automatically gives a lot of diversification and takes care of a lot of systemic risk of your portfolio.

To summarize today's verbose post [a catching up affair for missing out over the weekend]

No expert is required for creating a balanced portfolio of your hard earned money.

30% in FDs / FMP units that ensures liquidity and risk free yields
30% to 50% in Indices like NiftyBees, BankBees, HangSengBees [GoldBees as well when the prices are low]
The balance, in top notch counters as a majority with just some exposure to midcaps and smallcaps as they tend to appreciate fast in bull market conditions; however they also are the first to get badgered since their market capitalization is pretty low. Periodically review the portfolio and keep booking profits esp after 1 year when the Capital Gains Tax goes off. [Speculative Trading does not give that luxury]

Investment and Portfolio management is not rocket science; it is in fact very simple and a good hedge against the CPI inflation of 20% YoY [I don't care about the government statistic on inflation ever which is on a WPI level on a basket of goods that was valid in 1950s!]

Friday, December 16, 2011

EOD Analysis for 16th December 2011 and Outlook for 19th December 2011

Volumes still a concern when it comes to the rise for Nifty but swiftly comes in with the falls; case in point, OI in Nifty futures hovering around 24 million despite such a positive session in the first half and over 27 million for the falls in the afternoon session. BNF retested sub 8200 levels as expected [expectation was 8280 for this week but went below that as well by a good margin, thus opening the potential of retesting the 7800-8000 zone]

VIX shooting above 29 and a new low also made on Nifty. 1 close below 4720 ticked i.e. scope for option1 is still open. Excessive fear on the bourses and yet again we saw 2 significant movements today; options data on Wednesday had shown huge addition in OI for 4700 PE and 4800 CE; my interpretation for this failed! rather than being range-bound, both levels were pierced in 2 sessions and options premiums were royally crushed on both sides.

Lots of short-covering pending, potential Santa rally pending but with the close below 4720 and head winds, caution is advised. 4994 is a realistic target on the upside even now but longs should be initiated with appropriate hedges only. [The weekly close is almost short of 200 points of last week's close and marginally above the lowest low clocked in 2011]

Will be back in action from Monday again; enjoy the weekend. As far as global markets are concerned, the outlook posted earlier this week prevails and no changes to that.

Thursday, December 15, 2011

EOD Analysis for 15th December 2011 and Outlook for 16th December 2011

No major changes in OI even today despite a broad trading range. Good short covering seen after Europe open considering the pretty negative session in the morning. Banknifty still managing to hold the 8400-8500 zone but some more pain expected here. CNXIT is also due for some correction though the way counters are rebounding from the lows of the day are pretty encouraging. Premiums on futures are pretty healthy and that is a good sign for the days to come IMHO.

Critical Levels remain unchanged i.e. critical supports are in the 4720-4750 band and critical resistances are in the 4840-4880-4911 region. Short-covering can take Nifty to 4994 but need fresh longs to go beyond.

Some perspective on the corrective mode we are in
As per my personal analysis, there are 2 possible options from an EW-Fibo perspective of the downside targets

Option1: We take the First Major Corrective Wave from 6338 to 5177 = 1161 and hence the complete corrective wave structure should in the end have around 1.618 times initial length from the point where the correction started. [Can go upto 2.618 also but considering the time factor, inflation adjustments etc, 1.618 seems reasonable enough to me]

This gives us 6338 - 1.618(1161) to about 4460 levels; since this is on Py degree, time will be anywhere between 8 months and 25 months [PyA from 6357 to 2252 happened in 8 months, 2252 to 6338 happened in about 24 months]. And it is no surprise to see massive corrective rallies in between as we have been following Euro-Dollar literally [Euro-Dollar 1000 pips down, 630 pips up {1 pip = 0.0001} whilst on Nifty, we have roughly been doing 1160 points down, 650 points up]

This option says some more correction pending on our bourses.

Option2: We take it on one degree smaller i.e. just the November '10 correction 6338-5690 = 648
Since this is on a smaller degree, the maximum correction across the full structure will be 2.618 times initial length.

6338 - 2.618 (648) = 4641 in about 13 months.
With this option, one can conclude that the correction is over and now the markets will consolidate for a few more weeks before starting the next leg up.

Looking at the global cues and the way Dollar Index is spiking and the sharp correction that took place in gold last night [margin calls in all likelihood], my personal vote is for Option1

Confirmation that correction got over at 4640 levels ONLY AFTER we get 2 consecutive weekly closes above 5250 levels. So players for the long run can start looking at good scrips and adding them to the DP account with a 2-3 year horizon regardless of which option is in play. I have not an iota of doubt in my mind that sound businesses purchased in SIP mode now until the next 4 to 6 months will deliver a CAGR of 30% or more by Diwali 2014

For a trading perspective, confirmation that Option 1 in play ONLY AFTER a 2 closes below 4720.[1 close below 4720 can only go upto 4600-4640 levels IMHO]

Wednesday, December 14, 2011

EOD Analysis for 14th December 2011 and Outlook for 15th December 2011

OI in Nifty futures still hovering around the 24-25 million mark that is not able to sustain the upside momentum but not accelerate the falls either. Euro-Dollar has confirmed the technical signal for the next major destination to be 1.1850 in a phased manner of course [should be about 8 weeks]. Dollar Index in fact now has a minimum target of 81 and can notch a bit higher when the dollar denominated obligations turn up for dues. BNF will almost certainly retest 8280 levels and we should not be surprised for a retest of 7800 levels in the next 90 odd trading sessions.

FTSE is on its way to retest the 4900 levels but that may take a little more time; probably after the Santa Rally. Like-wise for the DAX, EuroStoxx as well. To the extent 11800 holds out on a weekly close basis for now, a Santa Rally to 12200-12400 levels is very much on the cards for Dow. It will be the last to fall in all likelihood. 2 consecutive closes below 11500 now and it is adios to higher levels for a pretty long time. [All indices on weekly charts are displaying a classic HnS pattern and the necklines will be plunged royally in a few more weeks]

Critical Levels remain unchanged; 4720-4728-4751 remain critical supports and 4840-4880-4911 remain critical resistances. Short-covering can take Nifty upto 4994 but beyond that we need fresh longs and buying.

Huge OI addition in 4700 Puts and 4800 Calls that may keep the index in a narrow range for a couple of days; a close below 4720 will invite retest of recent lows and we may see a new low before the Santa Rally. It is very critical for bulls to stage 2 consecutive closes above 4880 asap to be able to take Nifty to some respectable levels.



Tuesday, December 13, 2011

EOD Analysis for 13th December 2011 and Outlook for 14th December 2011

Yet another gap down courtesy weak global cues but today's gap-down was filled in the morning itself. From morning to middle session, the OI in Nifty futures was hovering around 23.5 to 24 million and VIX was pretty much unchanged. The last hour volatility added another million in OI whilst VIX cooled a bit [Shorts were royally trapped and chopped within 20 minutes!]. Such moves also highlight the importance of maintaining Trailing Stop Losses on positions that lock in the gains on profitable positions. Upto 4994, IMHO it will just be short-trapping and short-covering [volume conditions given yesterday and the day before]

As expected, the Euro-Dollar / Rollar are taking toll on BNF. Adding to the woes of 2 major BNF components are Credit Default Swap Premiums in the Asia Pacific market for ICICI Bank [i.e. the Bond Markets think a greater proportion of ICICI Asset Books are unsecured and capital infusion challenges for SBI - source for both these news bites courtesy Bloomberg] and thus, a test of 8280 on BNF is on the cards soon. Premiums on Nifty as well as BNF are pretty healthy now despite such low levels on spot indices. That being said, the rise from sub-8500 levels to almost 8600 levels today is also a morale booster for this counter. Again upto 8800 will just be a technical pull-back aided by short-covering.

Markets are still not out of woods and it is actually the IT majors that are giving some respite to the indices and RIL gave some cheer after the news on cash reserves came out [perhaps some short-covering as well]. On a longer term basis, RIL has potential to deliver some gains but we must be aware that even on monthly charts, this counter is stuck in a broad range of 600-1200 and then the bands get narrower as we move to weekly / daily charts.

Steel continues to remain weak and so will auto-majors for the time being. The bearish outlook for Nifty stays until the end of this week. 4911-4944-4994 continue to be strong resistances for the ultra-short term but a Santa Rally is on the cards. Euro-Dollar staged the first close below 1.3275 overnight and it is very critical to regain this level overnight today. In case it closes below 1.3275 today as well, then the next logical destination is 1.1850 in a phased manner of course [1.5 to 1.38 across 3 weeks in April; a 62% retracement to 1.44 levels across the next 5 weeks; 1.44 to 1.34 and then a 62% retracement to 1.385 levels; a sharp fall to 1.3175 levels now i.e. it is falling 1000 pips roughly and gaining 630 pips roughly and pretty much a 3-5 week cycle being followed for the falls and for the rise!]

Regardless of what Moody's, Fitch or SnP say about Euro-zone and downgrades, markets have discounted the challenges through Credit Default Swaps and Bond Yields. Dollar Index is headed to 81; The real challenge is almost nobody knows the degree to which these transactions have been leveraged and who are the under-writers. It is one thing to say we have a net credit taking MTM values of Long-Short positions and another to have the break-up because the MTM net credit is worth only if the counter-party insuring the debt is solvent; if not, it is a double whammy for financials and this is a highly probable outcome when the event takes place.

Looking for a bottom to be established for Nifty @ 4450-4550 and BNF @ 7800-8000 levels in the near future. Nothing much to add except for the fact that we are on the cusp of bottoming out on Nifty, some consolidation and then the upward march should begin. I would not lend too much credence to western analysts talking about BRICS under-performing in 2012-2013 etc; the longer term cycles clearly establish that Asian markets top and bottom out much earlier than western indices and Dow tends to be the last; case in point whilst Nifty and Hangseng topped out in last quarter of 2010 and started falling, FTSE topped in Feb '11 and Dow topped out in May '11; there is still the possibility of Dow retesting the 12200-12400 levels [again repeating 12200 has been achieved and 12400 is very much a possibility even now].

Even with a slow-down, BRICS will be growing at over 6% despite inflation and high interest rates. There are election pressures in a lot of countries in the next 6 months at state or country levels so the hot money inflows would wait and there are always liquidity pressures that may drive some sales further. In the period March 21st to June 21st 2012, we can expect the next phase of bull run to begin on Nifty.

For tomorrow, 4720-4728-4750 will be critical supports and 4840-4880-4911 will be critical resistances.
[Have made some lengthy posts since Friday to throw light on both domestic and international factors for fundamentals and some longer term outlook] Now until Friday, expect shorter posts with critical support, resistance levels and some stock specific advice only

Monday, December 12, 2011

EOD Analysis for 12th December 2011 and Outlook for 13th December 2011

A positive start to the day and then bit by bit, Nifty gave up all the gains and corrected heavily. OI in Nifty futures dropped sharply today and was clocking about 23.5 million - 24 million. This kind of volume will not be able to sustain upside momentum; 4911-4944-4994 continue to be resistance areas and short-covering can take it to these levels provided the volumes increase and least match those that we saw on Thursday/Friday [25-26 million OI in Nifty futures]

For the downside, lack of volumes can delay but not prevent the fall. VIX is pretty high and at one stage almost hit 30 [Inference: panic buttons are on] Euro-Dollar has given up the 1.33 level 2 consecutive closes below 1.3275 and it will race to 1.1850 [not overnight but this is technical signal enough to see where it is headed!] This implies Dollar Index will race towards the 80-81 mark and bring more pain across the bourses.

INFY continues to show some resilience and weakness to be confirmed here only after a close below 2650; IMHO, this counter is due for some profit booking now - so far in 2011, this counter has started its downside after hitting 200 DMA consistently [with the exception of first quarter when the 52 Week High was made] Sarmaji has given a Short Call on INFY today on the basis of his astrological studies and left it to me for the levels. 2750-2780 is the ideal shorting band IMHO or below 2700 for T1 = 2675, T2 = 2650.
Oil and Gas continues to be negative for this week i.e. counters like RIL, ONGC are 'Sell on Rise' counters. Futures recommended as the options are quite illiquid in case of ONGC.

FTSE has given the technical signal with 2 consecutive closes below 5550 of which Friday's close was a weekly close below 5550. Some relief rallies may come via short-covering / Santa Rallies but this counter is headed to 4900 levels now and once 4900 is breached on closing basis, floodgates will open for a journey further south.

Based on the close on Friday, a retest of 4750 was on the cards and we saw a day low of 4755 odd levels today. So at least now, some short-covering should come through; BNF has cracked a lot on the back of Euro-Dollar and also gave up the crucial 8600 levels [and almost 8500 towards the end!] at one point of time today. A technical pullback at least to 8800 levels should be on the cards before markets decide where to go.

Amongst auto majors, M&M has almost hit a crucial support level of 680-685 levels so some corrective bounce may be due here; a close below 680 may invite a retest of 650 odd levels whilst 2 consecutive closes above 690 will open M&M for 725-750 levels. Tata Motors has given up the 180 levels but 165-170 zone may provide some interim support. ONGC hit 255 and we should be able to see some short-covering on this counter from 250-255 levels before it decides where to go next.

A close below 4728 will almost certainly invite a retest of the recent lows of 4640 levels; I must say, even I have been stumped by the extent of falls today; considering the level of shorts that came into the system last week, I was expecting some upside to come through before the retest of 4750 odd levels but that has come through today itself. Call Writers are making hay and Puts are still winning so far. At least for December series, expecting a bottom to be formed by the end of this week and a Santa Rally from 20th December or so from whatever levels we are at.

Friday, December 9, 2011

EOD Analysis for 9th December 2011 and Outlook for 12th December 2011

Furious gap-down yet again followed by weak global cues but some short-covering was seen towards the Europe open session. This is fairly logical as a lot of traders would like to fold maximum positions and carry forward minimal risks over the weekend. Euro-Dollar was bound to fall with the interest rate cut and is somehow latching on to 1.33 levels and reversing from 1.3425 odd levels. 2 consecutive closes below 1.3275 and the flood gates open for 1.1850 now and this will further have a negative impact on Banknifty [may be partially mitigated by a dovish RBI stance or at least a pause in interest rate hikes]

All critical levels remain unchanged from prior posts [Need to keep a close eye on 4911-4944-4994]; Volumes were encouraging when the short-covering began with Nifty futures clocking an OI of 26 million during the middle session. At one point of time, VIX had zoomed past 29.5 levels and started cooling off with the short-covering prop-up significantly only to give up and reflect 29.5 plus levels on close. Last couple of sessions have seen Calls being crushed and now I reckon it is the turn of Puts being crushed for a couple of sessions. Short-covering can take Nifty to 4911-4994 levels but fresh longs need to enter the system for a sustained upside.
[Only if OI in Nifty futures clocks above 30 million and VIX cools down to 25-26 levels can sustained upside come in and till then, safe to assume that shorts will be chopped and that is just about it]

The close below 4880 [also a weekly close] is a very bad omen and if the conditions for upside are not met with, we need to be prepared for a retest of 4750 levels once again [and one should not be surprised to see a retest of 4640 but the current VIX levels and strong put writing suggest that some relief upside may come and some Puts may be crushed now]

FTSE has given a close below 5550 yesterday and in case we get a weekly close below 5550 today, the lows made in the last couple of weeks will be revisited. Floodgates open for FTSE on the downside once 4900 is breached on closing basis for 2 consecutive sessions. Likewise for DAX - 1st sign of weakness has come in but confirmation will come only after 2 consecutive closes below 5600 levels. For those who like to follow Euro-Stoxx, one must not forget that it bounced back almost 10% within 3 trading sessions so the current weakness on account of weak bourses on Europe logically can bring a 4% odd correction; Weakness here can only be confirmed after a close below 2125.

On Dow, 12k levels are still holding out and unless we get a close below 11800, I would still peg 12200-12400 an achievable target [12200 has almost been achieved - waiting for the next target] 2 consecutive closes below 11800 and then a question mark will come in for further upside.

Back to Nifty, surprising to see CNXIT counters showing resilience apart from defensive stocks like FMCG. Sell on Rise is a preferred strategy even now IMHO. Auto-makers making statements of strong sales is bizarre from an Indian perspective as sales have slowed down, interest rates have gone up and dealer inventory levels are pretty high [waiting period for diesel variants is not a representative sample of the mass purchases!] Auto-makers in Detroit are having record sales but the demographic data is different and not applicable to India. Likewise, CNXIT counters showing some resilience on the back of Rollar rates is immature behaviour as it is a short term upside but the industry is at the cusp of a significant slow-down. With developments in areas like cloud-computing and a significant demand slowdown in the West, the order books are going to dry out, margins squeezed, provisions for severance may come with the slowdown; and by the time the current quarter results are published, the Rollar impact will have to be discounted. So these temporary rises should be used to off-load holdings regardless of marginal profit / loss as this index is yet to find its bottom.

Real Estate also is yet to find its bottom and it is very disturbing to see sound companies like Suzlon getting badgered on the bourses. Whilst earlier valuations were too expensive, now it seems like too much of a bear attack as the company has good sales on a global level, second only to Vestas, the numero uno wind energy company.  Steel continues to remain weak and I would wait a little more to add steel counters in my account for now. Again reiterating that Nifty is on the verge of bottoming out now and if smart money indeed decides to go for the one final dose of shock treatment, we should be able to establish a bottom in the 4450-4550 region. The longer we take to bottom out, the threat of retesting 3800-4200 also looms. Nifty and Hang Seng led the bull market in 2009, topped out in last quarter of 2010 and again  will lead the next bull run on a longer term [looking at a time frame of 21st March 2012 - 21st June 2012 for the bull market to resume]

One should avoid the temptation of adding precious metals right now as significant corrections are still pending. As I keep mentioning that I track precious metals basis CRB values in USD / Ounce, the pending targets for silver and gold are sub-25 levels and sub-1450 levels before the next leg up comes in. Those holding Gold ETFs in DP accounts should keep booking profits IMHO and just retain some units in case there is a flight to safety and gold jumps temporarily. Silver should be completely avoided now on the long side.

We hope you have been able to enjoy the new dimension of time that we have brought in; we do not want to harp upon the successes so far as the time element is still in nascent stages for us and as a team, we cannot shy away from the fact that there have been errors in interim forecasts [and I can humbly say that all expiry forecasts I made for 2011 have flopped! I cannot escape this point and hence have stopped making expiry forecasts now; just looking at swing trade options and time now] To get an estimate of time zones for swings, I discuss with harshal bhai for his Fibonacci expertise; the same is then discussed with Sarmaji for his astrological analysis of planetary positions. When all 3 arrive at more or less the same swing trade time zone, I put that up on the blog here. [For December our forecast is 5th Dec to 16th Dec weak and from 20th Dec or so, a prop-up uspide swing will follow from whatever levels Nifty is at]

Sarmaji for this week made a forecast 2 days ago saying Oil/Gas will be weak, political disturbance will continue and Reliance will lead the falls [this forecast was made when Nifty spot was at 5095 levels and we can see the result] Day before yesterday, he categorically mentioned that Oil and Gas is represented by Scorpio and we will see weak/ness in this segment tomorrow led by Reliance. Puts / Shorts on this counter and perhaps ONGC will be rewarding!

Sarmaji's astrological guidance on Nifty, Banknifty, Reliance, ONGC, LnT, Coal  India all have come up well so far with the exception of MnM that has fallen but the rise above 800 was missed by us as a team. We are looking at eventual targets below 650 levels on this counter but the lot size / margin requirements are high so only those with guts of steel should enter these trades. [I do not have enough margin as well for this counter and hence I do not initiate trades on this one]

Enjoy the weekend and I hope to be able to build a progress report of the hits and misses that we have delivered as a team across the last 3 to 4 months for both the index and individual stock specific recommendations.

Thursday, December 8, 2011

EOD Analysis for 8th December 2011 and Outlook for 9th December 2011

What a day again! So the high addition in yesterday's call option data was indeed a build-up of calls and were crushed fairly well today. VIX zoomed past 28.5 levels and despite a positive Euro-Dollar [in relative terms compared to yesterday] BNF melted and did what it was supposed to do a couple of days earlier.
Even a dovish stance on European bourses brought little cheer! Again, a surprising element today was despite such a steep fall, OI in Nifty futures was lower and significant premium retained as well.

Markets are not out of woods as we have clearly been cautioning from time to time; as mentioned yesterday as well, even if one deems the correction to be over, a back-test of 4944-4994 was on the cards if not 4911. Today's close has been below 5032 and hence I would cap the upside for tomorrow at 5032-5050 levels. Volumes were low today, VIX very high and lots of shorts still in the system. However, the Friday factor may once again play out and we should not be surprised with a retest of 4880 on the lower side tomorrow and 4994 on the upper side tomorrow.

Once we close below 4880 on the downside, floodgates will open for a another 120 odd points slide if not more. Sell on Rise is still a preferred strategy until 16th Dec after which one can go long from whatever level Nifty is at for a small upside prop-up Santa Rally.

Keeping my fingers crossed as the hypothesis of Jan Nifty graphs on EOD basis is so far playing out as expected [but can only be confirmed after Dec expiry] As I keep saying, sovereign debt default in Europe has been discounted by markets already as suggested in the yield curves and credit default swap premiums. What hot money really wants to know is whether the swaps will be triggered or no; whilst nobody has a clue on exact level of positions in the system as far as swaps are concerned, if swaps are triggered, one can be sure that the next crisis will be worse than the Lehman Brothers debacle; if the swaps are not triggered [CMA has already made an official statement that 'haircuts' on debt won't qualify for default swaps i.e. insurance] then also there is pain in the system but perhaps much lower than what the masses estimate
[Justification: Just as with hot money mixing up Long and Short Options on indices and shorts, banks and hedge funds have a hybrid mix of Long/Short Swaps and in the case of swaps not being triggered, the downside will be limited to the net debits in swaps prmeium and of course the write-down on debt. As of now, the estimated sovereign debt due for maturity in the medium term works out to be an estimate of 5 trillion dollars and that is manageable with concerted efforts from central banks]

For other markets, Dow still has the potential to retest 12400 levels; DAX still has the potential to retest 6200-6400 levels. Euro-Dollar will collapse to 1.1850 levels after it stages 2 consecutive closes below 1.3275

Wednesday, December 7, 2011

EOD Analysis for 7th December 2011 and Outlook for 8th December 2011

Some positive global cues and Nifty raced to gain a pretty good sum of points from the opening bell itself. There are 2 perplexing points to ponder about in the options data today - despite a positive session, VIX spooked up a  bit minutes though Nifty was just hovering around the 5080-5085 levels and by EOD zoomed past 26.46. OI was healthy as the opening reflected a shade above 25 million and went to 27 million towards the last hour.  This is the 3rd consecutive close above 5032 level and if this holds out tomorrow as well on closing basis, then safe to assume that downside is limited to 4980 odd levels till the end of this week.

[Once again, similar to March and June series, seems like most of the action takes place in the first and last hour with flat sessions in between keeping both bulls and bears guessing; broader markets and VIX need to be factored and as far as the Options Data is concerned, there is noise; Calls are seeing lots of OI being added and there are 2 interpretations - 1: Call Writers are running for cover OR 2: Genuine build up of Calls anticipating some further upside. I am confused and am looking for hints from seniors for interpreting this paradox]

All critical levels remain unchanged from Monday's outlook. The premium on Nifty futures gained pretty good traction. Euro-Dollar above 1.34 will keep BNF breathing a bit easy for now and it just seems like markets are trying to discount a dovish RBI stance in advance which is not a good sign. Caution is advised as the EOD bars for Nifty, BNF and CNXIT all 3 showed a Bearish Tweezer Harami Cross on Monday.

The gap to the downside is still not filled and IMHO, this will be filled prior to 20th December and then the prop-up will commence [It may happen from current levels also but then it remains to be seen whether the price will break out of the downward sloping channel we have been trading in from 5th Nov '10] It is very clear that if we get 2 consecutive closes above 5250-5300 now on a weekly basis, safe to assume that the next leg up on Nifty has indeed commenced. [for longer term]

Even if one is optimistic about the correction being over [My personal vote is the correction is still pending but regardless of that bias, have to respect the levels reflected on the ticker], a back test of 4944-4994 is very much on the cards if not a back-test of 4911. As mentioned earlier, weakness on Nifty can only be confirmed after a close below 4880 whilst strength can only be confirmed after 2 consecutive closes in/above the 5092-5125 levels [for short-term]. Till these 2 Support / Resistance bands hold out, range-bound trades will continue.

Monday, December 5, 2011

EOD Analysis for 6th December 2011 and Outlook for 7th December 2011

Range-bound day with Nifty oscillating in a tight range through-out the day. OI in Nifty futures was around 24-25 million through out the day whilst VIX marginally went up by a point to 25 odd levels, hinting at some broader market selling pressure. Interest rate sensitives were also pretty much okay on the surface.

Markets are not out of the woods and it is understandable that at least from the retail traders perspective, nobody wanted to carry the trades forward for Wednesday with a lot of open positions. Some positive cues from Europe are being seen but one never knows how things will shape up on Wednesday.

This is the second consecutive close above 5032 and this is positive as far as the bulls are concerned though their critical condition for breathing easy is 2 consecutive closes above 5092-5125 levels. Bears have to still wait for a close below 4880 to confirm the weakness and to the extent these 2 levels hold out, range-bound sessions may continue. Our stance for negative bias and weakness stays for the period 5th December to 16th December after which we expect some upside to follow from whatever levels Nifty is at around that time.

All other critical levels remain unchanged. Today marked 233 trading sessions from the 4th Jan high of 6181 and IMHO, the EOD graphs until the end of this month will resemble the graphs we saw from 6th Jan '11 to Jan expiry to replicate itself [though the levels are lower now I agree - my expectations are on the structure and form rather than price levels; also note that this is just a hypothesis and I am NOT CERTAIN that actual movements will play out as expected.]

Enjoy the holiday tomorrow and let us see how things pan out on Wednesday.

Other updates:
Dow is expected to retest the 12200-400 levels once, DAX towards 6400, FTSE towards 5750-5800
Initial softness to be confirmed after a close below 11800, 5750-5800 and 5550 for Dow, DAX and FTSE respectively.

Euro-Dollar may try to make a poke at 1.3525 levels and GBP-USD at 1.56-57 levels before the down-leg resumes for targets 1.32 and 1.525 respectively

These movements will have an impact on Banknifty from external factors whilst RBI dovish stances may prop up BNF to retest 9350 levels before falling as 2 closes above 9150 levels on BNF spot is also some indication of strength on this counter.

Friday, December 2, 2011

EOD Analysis for 2nd December 2011 and Outlook for 5th December 2011

Fantastic day on the bourses and Nifty went well beyond my expected level of 4994-5011; The strength shown by BNF, Reliance, Infy, Automotive counters was great and have to hand it over to the bulls for staging this fantastic pullback from the lows of 4640. Volumes were encouraging with OI in Nifty futures at 26+ million with the rise. The close above 5032 is also an encouraging sign.

Critical condition for bulls still remains the same i.e. 2 consecutive closes above 5092-5125 levels with higher volumes nevertheless. Is the pain in the market over? My take is absolutely not and the markets are still not out of the woods and am still betting on some sharp correction to the downside from 5th December to 16th December. However, have to acknowledge that there liquidity in the system and this will find its way into index futures and options far higher than the equity side and unless the masses don't turn bearish, shorts will be chopped off [mine got chopped off too today and it is courtesy of hedges that I escaped with minimal losses but negative day in my trading diary nevertheless!]

Friday factor did not really have any impact today; taking a cursory look at the fall, Nifty fell from 5396 to 4640 = 756 points [50% retracement @ 5018 - achieved already; 61.8% retracement @ 5107 which in all likelihood seems the next assault point by bulls; this comes in the viscinity I mentioned 5092-5125 and 2 close here can put bears in ICU! Weakness confirmation for Nifty will only be after a close below 4880 and 8850 on Banknifty.

Euro-Dollar is above 1.34 that will keep banks steady for sometime;
For FTSE and DAX, 5750 and 6400 seem achievable targets from where we can see falls and weakness can only be confirmed with a close below 5550 on FTSE and 5800 on DAX.

Dow also has shown some strength and seems set to retest the recent highs of 12200-400 once before turning around. I think there is enough evidence all over the place that a deeper correction is due on all bourses but when bulls are on steroids, no point in coming in their way.

Thursday, December 1, 2011

EOD Analysis for 1st December 2011 and Outlook for 2nd December 2011

Lots of liquidity injected into the global systems with concerted action by a lot of Central Banks.
So far so good; readers still need to remember that the market capitalization loss in the last 6 months has exceeded 13 trillion dollars [not counting the losses in commodities, bonds, private equity and 'hybrid' and 'structured' derivatives] This is far greater than QE1+QE2+QE3*[expected to be $545 billion] plus all of BoJ interventions, all of ECB interventions, all of BoE interventions and debt monetization continues to haunt inflation woes!

I am very disappointed with our media actors talking about Food Inflation coming under control and all nonsense; has the cost of aatta, chawal, daal decreased by even 50paise a kilo? Does your bhajiwala reduce the cost of your potatos and tomatos by even 25paise a kilo? That is the big economic situation we are living in - Economic Contraction yet Hyperinflation. Even the proponents of EW are harping all over with the dictionary meaning of 'Deflation' i.e. decrease in credit availability. That is what the banks are doing; less business credit, staff reduction but absolute punter action on all commodities driving the common man berserk. What one can purchase with a 100 rupee note or 10 Euros or 10 Dollars - the purchasing power of these notes are simply decreasing due to debt monetization. So much so for the fundamentals

Yesterday itself, we had highlighted that a corrective C wave is unfurling that will try to take out 4911-4944-4994 as it progresses. The huge gap up fulfilled 2 levels and the last poke towards 4944 and possibly 5032 is pending. Tomorrow is Friday so we may have some postive aspects in the first half and then some profit booking towards the end of the session. Option writers spot is tethering between 4900 and 5000 for now

Critical levels remain unchanged; conditions for bulls have already been highlighted
Condition for bears gets stronger only with a close below 4880 and then 4780. The gaps on upside created yesterday and today are in all likelihood due to be filled before 16th December as the OI in both instances did not exceed 24 million; today, the OI was 23.8 million on open despite such a big relief but increased to 25 million when the profit booking game started.

Inference: Sell on Rise is preferred strategy being deployed. Gap-ups and gap-downs will be a common phenomenon until about March 2012 by which time the full blown effect of the debt crisis will unfold.

For tomorrow, 4944-4994-5032 will be sell levels; no buying encouraged for Friday factor and recommend folding maximum positions by EOD regardless of profit or loss and take fresh guard on Monday

Wednesday, November 30, 2011

EOD Analysis for 30th November 2011 and Outlook for 1st December 2011

Volaility filled day with a lot of opportunities for alert day traders and at the same time, a potential cruel day for safe traders with so many whipsaws intra-day. Such action is not uncommon after the meteoric rise on Monday and from an EW point of view, my views are slightly divergent from that of seniors [again, would like to remind all of you that such differences of opinion are not uncommon and it does not impact our relationship in any way. Apologies for any confusion caused to readers with this divergent outlook and can only say that when in doubt, stay out of the market or play with Edge of Hedge; of course it is prudent to do one's own homework]

Back to my interpretation of waves; from the lows of 4640, I am looking at the wave structure as a 5-3-5 zig-zag A [some fractals covered in the gap-up], Flat B done today and a zig-zag C unfurling now that will try to take out 4911-4944-4994 before resuming the next furious leg down. [Expecting this furious downleg to play out in the period 5th December to 16th December with some relief rallies in between]

INFY still latching on to the 2600 mark [though 2650 would have been better] after showing a low of 2561 today. Tata Motors saw a correction to 169.5 and then some pull-back. Banks also had a very topsy turvy day though BNF closed marginally negative today.

Critical levels remain unchanged; condition for bulls is to manage 2 consecutive closes above 5092-5125 levels and for bears, 1 exhaustion gap [created on Monday's open] is signal enough and the same will be bolstered with a close below 4700; if 4640 does not hold this time and the volumes are significant with the fall, 4450-4550 is where we can expect things to bottom out.

Volumes are not very encouraging and VIX somehow is not reflecting the true status of the market. VIX shooting beyond 29-30 levels will be a disaster on the bourses.

For tomorrow, sustaining above 4840 for 60-90 minutes will open up Nifty for retesting 4911 on the upside; sustaining below 4780 for 60-90 minutes invites a retest of 4720-4740 levels. Larger trend is still down as reflected in the broader markets.

Tuesday, November 29, 2011

EOD Analysis For 29th November and Outlook For 30th November

Pretty dull day on Nifty with lower volumes as usual; not very surprising to see marginal profit booking after such a strong pull-back yesterday itself. European bourses also are showing strong pull-backs [DAX well above 5700 and futures trading at a premium; Stoxx 50 registering a record 5%+ intra-day gain last evening after a very long time and likewise for FTSE] Euro-Dollar still lower but does seem to be having too much impact on punters;

Back to Nifty, markets are not out of woods but if global cues are positive and Rollar eases a bit, the potential of retesting 4911-4944-4994 is open; sustained volume and momentum below 4780 opens up a potential retest of 4700-4720 levels . Critical levels remain unchanged. Keep an eye on VIX as it seemed to spike a shade more than anticipated in a a range-bound session.



Monday, November 28, 2011

EOD Analysis for 28th November 2011 and Outlook for 29th November 2011

Positive global cues and gap-ups across the board on Nifty, FTSE, DAX and Banks led the way for Nifty's rise today. Concerns still remain that the OI in Nifty futures was just 24.5 million despite such a strong rise across the board and Euro-Dollar is still well below 1.34 levels. VIX dropped more than 2 points which is a positive sign at least for the ultra-short term.

More short-covering expected on Dow as well and next targets for DAX is around 5700-odd levels before heading for the next leg down. On FTSE, we may see a leg up to around 5300-5350 before heading to the next leg down and Dow towards 11650 odd levels.

Markets are still not out of the woods and the threat of retesting 4640 and going below 4600 is very real as we chug along Dec-Jan series. On individual counters, the strong bounce in Hindalco was impressive, and DLF, Tata Motors, HDFC were strong in their bounces too.

Unless volumes rise by another 15% or so, the rise can be attributed to short-covering; Critical resistances lie at 4911-4944-4994 and critical supports are 4720-4751-4794-4808. Expect some profit booking to come through in counters that had more than expected bouncebacks [apart from banks that rose well today, major benchmark index counters rose by 1% to 2% only showing stock-specific action on upside]

Friday, November 25, 2011

EOD Analysis for 25th November 2011 and Outlook for 26th November 2011

As expected, the OI in Nifty futures dropped by almost 30% 1 day after expiry and significant premium shrinkage in Nifty futures came in. Choppy action through out as markets are still undecisive. We had a poke below 4700 again but things seemed just about ok at close with BNF showing some resilience with a flat close. I am inclined to believe that this is due to short-covering and some profit booking from the highs of the day as very few people would like to carry risks overnight.

Looking at the way FTSE, DAX and Euro-Dollar are crumbling, I am inclined to believe that another leg of steep fall is awaiting Nifty and the low of 4640 in all likelihood will be retested again. If it holds, well and good otherwise the carnage can continue to 4450-4550 in all likelihood will finally get arrested hopefully.

For December, weakness is expected to continue with 5th December and 16th December being most crucial dates. From 16th-21st December, we are expecting a base effect to take place in Nifty and then march upwards; As of now can't see upside beyond 4994 but if bulls manage to take out the 5092-5125 levels for 2 consecutive sessions then further upside can be expected.

As mentioned in Raghuji's blog, the markets might play in a tight range for a few days but here I have a slight disagreement [as we keep saying, there is enough latitude amongst our team members to have divergent opinions and that neither hampers our relationship nor stops us from learning from each other]

In all likelihood 4600 will be broken this time is my stance [supported by astrological views from garikaptiji i.e. Sarmaji]

For global markets, expecting a relief rally on FTSE [from 5k-5050 levels with eventual targets being 4800-4900] and DAX from 5250-5350 levels with eventual targets being sub-5k levels. Euro-Dollar has hit our target and should find an interim bottom at 1.3-1.3225 levels from where some short-covering can be expected. Eventual destinations are 1.3 and 1.28 but in due course of time; there is no perpetual rise or fall. GBP-Dollar has also gone below 1.56 as indicated last week and hence the stability in BNF looks very illusory. Some more pain of 250-300 points expected here.

IT companies can book one time profits on forex but the real concern is growth and with the current economic conditions, it is very clear that the order book is going to shrink for next year and this will be the main concern for IT segment. INFY 3 times in a row has managed to stay afloat 2600 levels but if this level is repeatedly pounded, has potential to go down another 100-125 odd points. HDFC can slip to 575-580 levels if 605-608 levels don't hold firm on closing basis. Only 2 closes above 2650 [for Infy] and above 625 [for HDFC] can bring some relief on these counters.

For Nifty, volumes have to go up and minimum OI of 30-32 million required to gain 150 points from here - lack of volumes can only delay the fall but not prevent it.

Dow can correct another 200-250 points from here but there is too much bearishness now; should see some short-covering from 11k-11100 levels

All markets have been covered and hence no special updates will be made over the weekend. Dow section will be updated tomorrow morning. Hope you had a profitable week and hope all of you manage to enjoy your weekend.

Thursday, November 24, 2011

EOD Analysis for 24th November 2011 and Outlook for 25th November 2011

So expiry day did give us a movement in a 100 point range and closed in the positive despite some bad global cues. Lots of short-covering and OI in Nifty futures were also pretty high at 40 million. Now one should not be surprised to see a few days of low volumes as it usually happens after expiry. Is the correction phase over - well can't say anything right now; last time, Nifty hit 4720-4728-4751 [i.e. fell 3 times here before resuming the journey upwards and breaking out all resistances] Yesterday and today put together, we had 2 visits to the 4640-4660 zone and we have seen bouncebacks from there. There is a potential to retest this and if this 4640-4660 zone gives way with volume and momentum one more time, there can be a further fall to 4450-4550 zone where the correction should ideally end and a new cycle should start.

Critical levels remain unchanged; Unless bulls manage 2 consecutive closes above 5092-5125 levels, safe to assume that markets are weak and vulnerable. As we keep saying there is no perpetual rise or fall and the 4911-4944-4994 levels that were key support levels earlier will provide stiff resistance. Friday factor might come into play tomorrow. Stock-specific investments can commence in SIP format now.

Stay away from the banking segment for some more time. In the infrastructure space, IRB looks good; in the technology segment, SmartLink is now looking attractive and in the consumer side, I guess one can pick up some units of Moser Baer, Navneet Publications with a 2-3 year horizon. Whilst some correction has been seen in punter counters like Polaris, Jubilant Food etc, my personal recommendation is to wait a little more. Amongst Mutual Funds, I would still prefer to stick to HDFC Top 200 fund with about 10% investment corpus maximum spread out over the next 3 to 4 months. Likewise, though it is near certain that Nifty has high chance of testing more lows, with a 2-3 year horizon, one can start accumulating Nifty Bees in the demat account.

As the saying goes, buy low, sell high as far as investments are concerned and in a staggered systematic way. As our captain wave rider says, no point trying to pick a top and bottom; as far as investments in demat account are concerned, one should hold them for a minimum one year period and escape the capital gains tax as well.

Dow, FTSE, DAX all hit our targets this week and we hope to get better with the analysis on both Nifty and Global Markets. Hope you enjoyed the current series with good profits.

Wednesday, November 23, 2011

EOD Analysis for 23rd November 2011 and Outlook for 24th November 2011

Weak global cues and selling en masse right from opening bell; Nifty futures clocking an OI of 43 million plus that was enough an indication that the fall will be deep today especially after 4720-4693 were taken out in a jiffy. Has the market bottomed out yet - difficult to say but some short-covering was definitely expected from the lows of the day. Banknifty now has 3 critical headwinds going against it;

1] Euro-Dollar / GBP-Dollar [which in turn has an impact on Dollar Index and Rollar]; Dollar Index is yet to peak [80-81 is the potential target], Euro-Dollar is yet to bottom out [1.32-1.3-1.28 next potential targets]

2] NPAs surging in balance sheets of banks / Exposure to PIIGS debt to some extent by leading banks

3] Credit Growth contraction and lower NIMs as we chug along

So unless the above 3 factors don't play out completely and reverse, Banknifty will keep drifting lower which in turn will have an impact on Nifty. Even on Nifty, the premium shrinkage even on Dec Nifty was too much - until yesterday, it was commanding 20+ points premium and at one stage it dropped to 10 points and similar price action for Jan Nifty as well

FMCG, Pharma, Infy, Tata Motors gave some respite in such steep falls [no gains but some stability nevertheless] Tomorrow is expiry day and we don't know what form of manipulation will play out for the FnO settlement. We still maintain that 4450-4550 is the zone where Nifty should be able to find a bottom and then start the next leg up.

Short-covering to some extent is being witnessed in DAX and FTSE as well and one should not be surprised to see the same on Dow tonight. To the extent price remains below 11625 [11625 is very much achievable on Dow via short-covering itself], the next leg down should land around the 11250-11300 area and then we know what to expect on Nifty.

Tuesday, November 22, 2011

EOD Analysis for 22nd November 2011 and Outlook for 23rd November 2011

A day with lots of volatility on either side; a relief rally was due courtesy short-covering; OI in Nifty futures surged to 41 million [expiry roll-over effect??] and VIX was ok at around 27-28 [Manipulation as this kind of volatility warrants 29+ VIX IMHO - our NSE only feels falling prices = volatility!]

Nevertheless, all bourses were due for short-covering after the brutal carnage yesterday. Euro-Dollar is a shade above 1.354 as I put this and it has potential to pull-back to 1.36 levels [or a shade higher] eventual target is 1.34-1.32-1.28 in gradual phases over the next 5 to 8 weeks. Back to Nifty, INFY again went all the way down to 2600 and closed above 2700 levels - whether it will manage to sustain such levels is a big question especially with so much negativity around. Tata Motors made a smart recovery considering the levels to which it was badgered until yesterday but the rise is an illusion.

Critical levels remain unchanged; direction is down, momentum is down but weak hands will be chopped on the short side as well as long side. November 2011 in all likelihood is set to go down as Mowember! Only money printing can save the bourses and yesterdays collapse in metals is a clear cut indication of margin calls being triggered. Eventual downside target for Nifty is 4450-4550 from where the next longer term leg up can commence.

There is no perpetual rise or fall; in the short-term, all markets will tend to mirror each other; for the next 3 to 4 months; hedges are critical as there will be many gyrations on either side before going in the direction of the larger trend [which id DOWN]

For those of you who are asking stock-specific advice, please take a little time off to go through the weekend posts of mine made over the last 6 weeks; all counters, indices, entry points and targets have been given there.

For all those who want to get in touch with seniors like wwji, raghuji, harshalji etc, yes, we do have a controlled group on FB and we don't believe in more the merrier. The forum is moderated by our dear Sunny bhai and entry is by invitation only. Please send a PM to diehard39 on mmb or send a freind request to Sunny Hooda on FB [DOB 3rd August with a tiger as his profile picture]

Condition is Very Clear: You have to provide contact details that can be verified - and if he is satisfied with the same, he will provide access to our group there. His decision is final and binding.