Friday, November 18, 2011

EOD Analysis for 18th November 2011 and Outlook for 21st November 2011

Relief rally on Euro-Dollar leading to some short-covering in Banknifty; barring some monetary stimulus by US Fed, UK BoE or ECB, Euro-Dollar seems to be on its pull-back to 1.355-1.36 [or a shade higher] after which there will be more attempts to take out 1.34 on the downside and move towards 1.32

FTSE is a shade below critical support of 5400 as I put this and DAX is marginally above 5800; SnP broke 1230 on closing basis yesterday and Dow broke 11800 on closing basis but lots of short-covering pending.

Back to Nifty, the close above 4880-4888 was crucial for today because a close below 4880-4888 could straightaway open the doors to retest the pending downside gap of 4751-4888. INFY has closed below 2750 today but one close could be a false alarm. 2 consecutive closes below 2750 on INFY and it has potential to retest 2650 levels; on the other hand if it manages to close above 2800-2825 on Monday, things may be calm on this counter for some more time.

Well we have already highlighted the significance of 16th Nov - 22nd Nov earlier and markets certainly are not out of the woods. Sell on rise still remains the preferred strategy unless bulls stage 2 consecutive closes above 5092-5125 levels. 1 close above 5150 and another 144 points can be regained by Nifty. 1 close below 4880 and we know what to expect. VIX in the morning half actually was quoting almost 28 but calmed down in the end. There was no major surge in OI compared to yesterday in Nifty futures on either side of the movements today.

I am bearish to the extent Euro-Dollar is below 1.365, FTSE below 5550, DAX below 5900, SnP below 1230 and am expecting the following levels to play out in the next few sessions that will have a negative impact on Nifty. Broader markets are just getting badgered which is a classic symptom of bear markets [and this is the major difference between the falls in August-September and current falls. Counters like Suzlon, JP Associates, DLF, IFCI, IVRCL are all being hammered] Silver futures crumbled over 6.5% overnight on Comex, Copper, Platinum were beaten down and even a safe haven like Gold collapsed 2.5% on Comex overnight - all these just indicate 1 thing that the media will dole out as 'breaking news' after the funeral ceremony of some hedge fund or banks - the message is loud and clear - 'Margin Calls' of small and medium sized punters operating in the name of hedge funds / leveraged ETFs in Europe / US and are selling them off to honour margin / redemption committments.

Spain will have an election on Sunday and the results are already known - whilst a lot of attention is being paid to Italy [that in all likelihood won't be allowed to fail] and Greece / Portugal have been written off by the markets and Ireland is slowly but surely working on it's commitments to the Euro; one should not be surprised to see the real default and big collapse commence from Spain. The opposition that appears set to take power are very clear - they don't want to keep things dangling on hooks of uncertainty - they have a very hard line approach and have made it very clear to the banks - there is a fixed cost of implementing changes and the longer we take to set the house in order, the greater will be the problem. If one swipe that brings a short term pain can yield longer term benefits, then so be it is their position. If triggered, barring the top 2 banks Banco Santander and BBVA [both stand to lose about 30% of Book Value but can still survive], at least 3 other banks are set to fail. Will there be turmoil if Spain goes ahead and does that - yes there will be turmoil in global markets if this is allowed to happen but this is the only choice one has and the Spaniards seem set to embrace this change.

This will bring about a bad situation and Spanish debt will be insolvent if such a hard measure is taken but eventually markets realize this and things slowly but surely come back into order. We have seen this with Brazil in the past as well and it was only a matter of 3 months when such a hard political change was employed and FIIs in Brazil pulled the plug. 3 months later, when they saw the real impact of change, FIIs gave a thumbs up to the new government [which is still ruling even today in Brazil]
The Greeks and the Italians have grown too cozy with the Euro and do not wish to embrace change that will force them to start working harder for lower wages - somebody has to bite the bullet and markets will reward those in the long run.

Euro-Dollar below 1.34, GBP-USD towards 1.56, FTSE at 5300, DAX at 5600, SnP slowly grinding down to 1190 levels and Dow in the 11500-11800 zone. However, there is no perpetual rise or fall so unidirectional positions won't help. All major markets that have an impact on us and levels have been covered so there won't be any additional post over the weekend.

Hope all of you had a profitable week or managed to escape with minimal losses with the Edge of Hedge; wishing all of you a good weekend and blog posting will continue from Monday.


reachnagraj / theknight16 said...

Another reason why the market is almost on the cusp of sinking-the international body that governs CDS i.e. Credit Default Swaps has made it explicitly clear that haircuts enforced on Sovereign Debt wont qualify for CDS Insurance. This has more bad omens than good. Most fund houses and othrr holders os sovereign debt are cozy that they have insurance of counter-party risk, they will be forced to take hits on their balance sheets as this situation is equivalent of an option expiring worthless!

India must remember that 52-53 on Rollar was the price when Lehman Brothers debacle took place. Market breadth has already been discussed and LCs on mid-caps/small-caps will be the norm in the short-term; VIX is the only pending trigger for deep corrections!

lalitlk said...

is interesting & hence cited.

"89" is two-digit highest fibonacci number; is it possible to customise 89 MA & 89 EMA & investigate if there is any 'natural' co-relation.