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.

3 comments:

Raghuvanshi said...

Dear Naagi,
As the basic purpose of this blog is to educate small traders like me,it would be great if you could mention the "science"behind time analysis.IMHO for tips we have umpteen no. of sites on net but very few of them mention/educate the reasons/indicators behind those tips.
Just s WW's initiation has led to a good crop of EW/TA analysts in our family,why cannot we openly discuss the time-aspect whether caused by planets or calculated by some other method?

reachnagraj / theknight16 said...

Guruji - AatmaPranaam
We are still in the very nascent stages of time analysis; for astrological outlook, Sarmaji is the right person to comment.

I will share my method that I am currently working on; I am taking the Swing Tops and Bottoms across the last 14 months i.e. the dates we hit 6338, 6181, 5944, 5177, 5196, 5740, 4720 and now one addition is pending for 4640 that I hope to complete this weekend.

It is the same template in which I have uploaded the Excel Grids earlier on this blog. Everytime a date cross-over appears on the crossing axes [the pink and yellow cells], it hints at an alert point. If a cluster of dates show up on multiple grids from different swing top/bottom dates, high volatility can be expected and large tradeable swings can be expected.


4 critical dates where large swings can be anticipated are 21st March [Spring Equinox], 21st June [Summer Solastice], 22nd September [Fall Equinox], 21st/22nd December [Winter Solastice] Whether the swings can be on upside or downside depends on other parameters [EW helps a lot in this case for price action]

This is all that I know for now and as and when newer aspects turn up, I will definitely share with all of you.

manu said...

I don't trade daily but read your article almost regularly.Your efforts are very much praiseworthy.Many of us read but you take the pain to educate others.I felt I should also write something to encourage you.At least this much pain I can take.Hats off to you.