Saturday, November 5, 2011

Global Markets Update - Special Coverage For Indian Bourses - 5th November 2011

So moving forward to Nifty, what the hell is on-going here with so many people calling 'bull-bull'; as usual, I need to start off with the disaster-led forecast I had - was looking for a new high this year on Nifty subject to 5408 levels being intact until 12th August and should that break-down, 5092-5125 levels to provide a buy-zone and we conquer 5532 by September without breaking that all the way through till October. We retested 4700-4750 zone 3 times in Aug/Sep/Oct and seem to have come back to 5100-5400 range - really; are things hunky dory again for Nifty already? Please refer the attached file that has taken Nifty in the 5100-5400 range and the spot prices of the top stocks in each major period of fall and rise this year. Blame it on my lethargy that I have only focussed on the top 20 stocks rather than the entire 50 stocks - but what has been covered here is pretty much a representative sample of the state of the market. [Need to add here that the defensive FMCG segment has been missed out and they have proved their merit in the falling market]

Being an emerging market index, Nifty will tend to move ahead of fiat currency indices in the rise and fall; The market breadth is getting pathetic with each passing month and right now, the real estate pack, IT pack and automotive pack is showing some strength - but how long can they hold when Banknifty and contenders are cracking - could be anybody's guess.

As I have mentioned, Euro-Dollar staging a close below 1.36 will seal the fate of BNF and it seems set for a retest of 8k-6.5k levels; We are almost at the bottom of the market for Nifty IMHO; as per the broader picture, I am looking for a bottom around 4550 within this month [or maybe a little more depending on the drama of Europe]. As Raghuji mentioned yesterday, we need to take it one at a time and in terms of short-term momentum, we need to wait for a breach of 5169 first, then 5032, then 4880 and then 4720; as seen, there is no perpetual rise or fall and hence taking unidirectional positions won't help.

Cash continues to be king and the small-caps and mid-caps are already badgered to a great extent and they can be accumulated slowly and steadily. Nifty Bees continue to be good investments in the spot price range 3800-4800 [I am not saying Nifty will go to 3800 but markets tend to be irrational so we need to be alert for those possibilities] Any value below 4800 on Nifty spot in current market conditions is a Buy Signal for Nifty Bees with a 2-3 year horizon of more than doubling the value. As I keep mentioning always, the key is systematic investment in tranches and like-wise for BankBees, HangSeng Bees.

Entry prices for these 3 securities to recap once again
NiftyBees - Any price below 4800 on Nifty spot (Recommend 20% of Investment outlay in 3 to 6 installments of entry)

BankBees - Any price below 9000 on BankNifty spot (Recommend 20% of Investment outlay in 3 to 6 installments of entry)

HangSengBees - Any price below 15k on Hang Seng spot (Recommend 20% of Investment outlay in 3 to 6 installments of entry)

As usual, for investments, the mantra remains buy low - sell high; avoid the IPO manias, avoid picking up sectors that do not have regular cash flows. Avoid operator driven stocks like Shri Ashta, CALS Refinery, Jubilant Foodwork, GTL, KS Oils etc etc.

Stick to the good stocks listed in the Nifty 100 stocks for best results;
For instance JP Associates is a good stock that was artificially inflated; it should be able to find a bottom in the 40-55 price band and one should pick it up in tranches at such price levels.

Other infrastructure stocks like IRB, Lanco Infra are all coming close to their bottoms now; very confident of IRB bucking upwards again in 2 years time [can say about this as I have myself seen the way the Mumbai-Pune expressway works with regular cash revenues]. Lanco, relying solely on charts and this is not a company like Koutons or Cantabil that never had a sound business model in the first place. On the same lines GVK, GMR [barring their power (mis)adventure] - the air terminal business model is absolutely sound. Both Delhi and Hyderabad airports are doing well for GMR and Mumbai and Bangalore airports are doing well for GVK. They were over-heated earlier, and now the prices reflect sanity.

On the telecom front, growth is here to stay and whilst Airtel is quoting much higher prices than warranted right now, RCom, Idea etc are almost close to their bottoms. One may wish to wait for another retest of lower levels on Nifty and pick up some on delivery basis.

As far as precious metals are concerned, there is stark divergence in price of gold and silver [I always give the price basis USD / Ounce on comex levels] This uncertainty regarding fiat currencies may show a temporary mania in gold prices but the eventual target is 1200-1400 dollars an ounce; around these levels, one can just go ahead and buy some gold bars/coins and retain them for long-term returns. Silver, being high beta is near certain to quote below USD 25 an ounce at which time one can start accumulating for the long term.

Coming back to the short-term focus, the falls are being bought into and unless we get a close below 5032 on Nifty spot [that can only surface as a probability once 5170 is broken on closing basis] and full weakness with close below 4880; until then, those interested in trading can stick to Nifty futures, open positions on both sides with a 1:1 ratio with a stop-loss of 25 points on either side and trail the winning leg.

Global Markets Update - 5th November 2011

What exactly is happening - total theatre/cinema style being adopted by politicians and central bankers of fiat currencies? Well, they can try whatever they want to; they can delay but not avert the inevitable. Whether BoJ injects dollars, ECB cuts interest rates instead of printing currency [fever is better than typhoid right?] - the economy is contracting, let us make no bones about the fact and yet, the inflation demon isn't getting tamed. I wonder how come so many people, media etc try to make 'breaking news', 'headlines' with Greece and surrounding fragile economies. Let us face some facts - the entire world of fiat currencies are simply monetizing debt to the maximum extent possible and gain political prowess.

All borrowed money to the hilt with the promise of returning the same with decent returns but now have no money to return. This is not the first time a sovereign has defaulted on debt - we have seen similar episodes multiple times from emerging economies; yet, they have gotten back on their feet, harnessed resources, got some discipline in their fiscal and monetary policies only to see the economy vibrate [yes - if anybody thinks I am talking about Brazil / Bovespa, I mean exactly that] It just took 3 months when there was a shift of power and markets abandoned Brazil a few years ago; the worst a political leader coming into the helm could expect in his first 100 days. Yet, a few weeks later, when the economy was opened, things changed and see where Brazil stands today? [I don't want to get into the nitty-gritties of income disparity, bureaucracy etc; all emerging economies including India have a lot of that] All that I am trying to say is that there is no perpetual fall or end of the world; when an economy works towards generating real economic expansion, jobs, slowly but surely things turn around. Yes Brazil defaulted on it's loans but then also repaid it as economic conditions got better [now it is also over-heating especially in real estate and one can expect a decent correction here]

Come on - markets knew very well 2 years ago when the Greek crisis first surfaced that it would not be able to repay its debts. 120% of GDP and 6% yields on sovereign yields are signals enough to know that there is a big problem here. For some time, things will be grim but it is not going to be the end of the world.
Europe has enough talent to get back to work and be productive - after all, it is the very capitalistic approach of Europe [and then US] got the industrial revolution. I personally refuse to believe that a country like Poland can leapfrog as an emerging central European country changing the economic landscape from grim to a very vibrant one whilst the other peripheral countries cannot - it is more to do with lethargy and inertia.

Rather than try complex financial engineering methods [that will only worsen the case for global markets], it is better to once and for all acknowledge the challenges and let the countries default. Here lies the Catch-22 situation - it is not the sovereign debt that is bothering the central bankers or banker fraternity in general; there is such a complex web of fixed income derivatives revolving around this debt the quantum of which nobody knows at this point of time [thanks to off-balance sheet items] and can spring a surprise at any point of time. Spain has ample scope for tourism, automotive industries and of course its rich agricultural prowess with olives. Italy again has good engineers, mathematicians [let us not forget that Fiat has been producing high quality engines consistently]. The entire banking system needs an overhaul once and for all - it is time to bell the cat and say - we care hoots to what happens but all leveraged positions need to be unwound, cleared, settled and regardless of who wins and loses - a certain perceentage of the net gain will be used by sovereign to clear the mess. A fresh banking system to start off - will that happen - I guess not since there is too much at stake and this is simply a utopian dream.

So let us get back to basics and see where we stand vis a vis Europe and US
FTSE had critical support at 4900 and it was due for a corrective rally towards 5550 levels [beyond that was a bit of a surprise but then markets cannot cease to surprise one]. 5600-5680 levels cap the upside of this relief rally for now and it seems like the turn has begun but too early to conclude; now there might be one more relief rally [or maybe not] but T1 for FTSE is 5300 and we should be able to see it in all likelihood next week itself. Similarly for DAX, a close below 5800 will confirm the fall and then it can fall another 150-200 points in a jiffy [rest of Europe will follow automatically but just as with FTSE, one poke by DAX at 6150 levels again is not ruled out]

From a currency perspective, Euro-dollar's fall from 1.44 was very fast and a relief rally towards 1.425 was very logical. With or without news, it was bound to happen, just that with news, both the upside and downside proceded with remarkable acceleration. It was an impulsive fall and hence, it is now chalking out a complex corrective pattern and trying to retrace some of the falls and since GBP retraced 61.8% of the previous fall, fair to assume that Euro will try to do that. News will follow - charts are clearly indicating that the next logical target for Euro-Dollar is a tad below 1.36 and eventual target in the next impulsive leg of fall is 1.28 to 1.32 [let us give this 3 to 5 weeks time] and like wise GBP-USD will fall towards 1.55-1.56 levels in an impulsive format after making one more attempt towards 1.6125 levels [note the remarkable closeness to Fibonacci in terms of retracement of the fall as well as the number!]

To bring in EW terminology, the rise in FTSE, DAX, Dow this year were all inter-mediate B waves [the jury is still open whether the intermediate B is done with qualifiying for a Regular Flat (95% odds IMHO are that the inter-mediate B-waves are done with and the inter-mediate C has commenced) or still B in progress that can surface as an Expanded Flat (5% odds but if this is the case, we should see at least 2 more attempts by western indices before December to get as close to the 2011 highs as possible)]

So assuming that the intermediate C wave down has begun for western indices [the impulsive falls from the highs justify this verdict], we are seeing a corrective minuette C2 giving us these relief rallies and bringing forth a lot of bullish sentiments. The facts of the case are simple and straight-forward as I mentioned last week. Randomly, take the top 15 stocks that have high weightage on any index of western bourses [DJIA, SnP500, FTSE, DAX, SMI, CAC40 - whatever you please] The current index levels are pretty much at 75% to 90% of the 52 week highs; if this rise were indeed genuine, at least 75% of the top stocks of these indices must be quoting about 75% to 90% of the 52 week highs? Is it really happening? I doubt it especially considering the way KBW Bank Indices are falling and the way the Fixed Income Markets are behaving.

Whilst fully cautioning bears not to short blindly, any sane person with a little bit of common sense can see the smoke mirrors all over the place - and sad but true, mass psychology probably tends to look so much into the news and words that are being assertively hurled. The debacle of MF Global in the US is just a tip of the ice-berg; if there is anything to be seen with the 2008 debacle on the bourses and now, there are too many things showing same symptoms; relentless rise in debt yields [just that this time, it has more to do with sovereign debt than corporate debet], jobless claims are not really dropping much [after adjusting for the seasonality factor for farming payrolls], consumer confidence is low, stores are shutting down, downsizing, orders are dwindling. Shipping indices are just showing a seasonal high but the reality is all the large container fleet vessels that were aggressively ordered in 2007-2008 are being deferred for deliveries.

Banks are not willing to lend to private businesses or personal credit; private label consumption is increasing, luxury goods sales are decreasing and every day, some major conglomerate announces a job cut drive to gain control over costs. For those invested in exchange linked mutual funds, ETFs, this couldn't be a better time to withdraw and escape with minimal losses now and just hold on to cash.

SnP 500 once it posts a close below 1190 levels, and Dow below 11425 levels, the fall after that will be worse than the fall from current highs [which represents a deep fall already from the highs] IPO mania seems not to be over yet but all will bite the dust sooner than later as a demand slow-down and lack of proper revenue model won't aid these IPOs.

So putting things in perspective for Nifty / Banknifty, a close of Euro-Dollar below 1.36, GBP-USD below 1.56, FTSE below 5400, Dow below 11425-11500 zone will bring bears back into action. Coming up next, coverage for Nifty

Friday, November 4, 2011

EOD Analysis for 4th November and Outlook for 8th November

Well not a bad session at all with Nifty opening positively on global cues and some profit booking followed. Falls are still being bought into, premium on Nifty futures still very healthy and even Banknifty taking  interim support at 9500-9750 zone. SBI had critical resistance at 1950 levels and seems like it has managed to take it out; as usual, 1 close can be a false alarm but 2 consecutive closes above 1950 on SBI has potential to yield another 100 points in the same direction. 2 consecutive closes above 2050 can yield another 100 points but in these choppy markets will it be able to achieve it? Need to wait and watch.

Critical levels and conditions remain unchanged; looking at the way falls are being bought into, a retest of 5348-5378-5408 seems to be on the cards but these are very strong resistance points and 200 DMA is around the 5408 levels - need to see how things pan out. As mentioned yesterday as well, a close over 5408 with volume and momentum [need to see OI at 35 mill+ on Nifty futures against the current 30-31 million] and broader market participation. Banknifty will only get weak with a close below 9500 and as of now, upside seems capped at 10k levels IMHO. 2 consecutive closes above 10k levels will open BNF for a retest of 10250 levels. Euro-Dollar is staging a counter-trend rally after a deep fall 2 days ago; there is strong correlation between the Euro-Dollar rate and Banknifty as of now [courtesy to UMji of MMB who opened this perspective for me]. Euro-Dollar has a pending target of 1.36 and lower in this series itself and once it stages a close below 1.36, one can see Banknifty cracking apart but we take each step at a time. For now, prices are above 1.382 and first weakness signal will be a close below 1.3725 and like-wise, unless GBP-USD does not print below 1.58 and then 1.56 BNF may manage to hold on to current levels [also look for the strength in SBI given above]

On the downside, bears can only rejoice with similar cheer like Aug/Sep series when 5032 is decisively broken on closing basis and that will not happen before next Friday IMHO; a close below 5177-5196 zone will open Nifty for a retest of 5032-5092 levels; other critical levels remain unchanged and depending on where Nifty spot is, consider it as support/resistance.

Monday, markets will be closed and we may be in for a surprise on either side depending on how things pan out on Dow, DAX and FTSE. Critical levels for Global Market Perspective and Special Coverage for Indian bourses will be updated over the weekend as usual. Hope you have managed to rake in some profits and cut losses with our contributions.

We have had a funny week - not as profitable as usual and the original positions we took got stopped out many a time whilst the hedges actually helped us escape from losses and end in NPNL or marginal profit net of brokerage. We have never claimed to be maestros of analysis and the quality of our analysis is openly visible [we are not at all happy with the level of accuracy at this point of time] As usual, if we rejoice via words for the profits, it is only fair for us to acknowledge weeks when things have not been hunky dory for us.

This is our team's way of walking the talk of ethics; rather than employ cheap and under the belt tactics, mud-slinging in public, name calling etc - everything is open for scrutiny for the ones who would like to monitor our track record with a fine-toothed comb - just look at the date for outlook, check actual price action and the trading strategy given - I rest our team's case with this. Enjoy your weekend and I hope to catch up with some of you over the weekend over Skype or Gmail etc.

PS: I have been receiving add requests over my yahoo/gmail/skype addresses sans proper introduction and contact details; I simply ignore such requests - please keep this in mind while sending requests.

Thursday, November 3, 2011

EOD Analysis for 3rd November and Outlook for 4th November

Quite an interesting day with reasonable movements on either side of last 2 day's closes and then ending pretty much flat. OI in Nifty futures hovered around 30.4 mill throughout the day and the premium on the futures is still pretty healthy. In stock specific action, interest rate sensitives continued be under pressure and whilst profit booking was seen in BNF, 9500-9750 provided the much needed interim support. Euro-Dollar may make another attempt to breach the 1.382 mark that is a corrective upside rally IMHO and this will aid BNF on the upside. A retest of 1.36 for this pair and retest of 1.56 for GBP-USD is on the cards and European bourses are seeing relief rallies via short-covering that should in all likelihood find the tops by today evening or mid-session of tomorrow.

5032-5092 have been providing firm support and they are expected to extend the support for another 4-5 trading sessions to complete 21 trading sessions in a row with close above 5032. If bulls manage to keep that as the firm bottom until next Friday, then safe to assume that the downside is limited to 4980 until the middle of November series [my personal take is that 5032 will be breached by the end of next week i.e. by 11th November] as some longer term bearish cycles are due to surface as we proceed to the middle of this series. Nevertheless, crucial levels are holding firm and as usual, critical to keep that in mind before taking aggressive unidirectional positions.

As usual, my preferred stratgey is to take positions via long-short pairing of Nifty futures with a 25 point stop loss on both ends and trail the winning leg. For BNF, shorts can be opened as close to 10k level as possible [as usual again, initially with a hedge and then trail the winning leg]

Gaps on the upside have been filled and one down-gap has almost been filled. For the other major gap 4750-4880, only a close below 4880 can ensure that the same will be filled. Based on patterns for the last 3 months, no gap has been left pending on either side for more than 8 weeks. Let us see how November series pans out.

Just to recap the critical levels

5032-5092-5148-5177-5196-5225-5280-5325-5348-5408-5440-5480-5496-5532

200 DMA is almost at 5408 and just as the close above 5150 had potential to yield another 144 points to the upside, a close above 5408 will open Nifty for a retest of 5532 [low probable outcome]

A close below 5032 will open Nifty for retest of 4911-4944-4994

Wednesday, November 2, 2011

EOD Analysis for 2nd November and Outlook for 3rd November

Nifty opened on a soft note today despite so much negative news but the OI in Nifty futures in the morning session dropped a tad bit to just under 30 million; BNF also managed to hold the 9750-9800 levels in the morning session. Towards the end, the OI in Nifty futures managed to surge a little more to 31.5 million.
Premium on Nifty futes are still healthy so there may be some more upside pending before the larger fall. Interest rate sensitives will continue to remain under pressure and so will banks.

On the other hand, bears can only rejoice when Banknifty closes below 9500 and Nifty manages to break out of the 5032 levels. Volatility is here to stay for a few more days; most western bourses have a round of short-covering pending and the same should reflect on Nifty as well. All crucial levels remain unchanged.

Tuesday, November 1, 2011

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

Following weak global cues, we saw a sell-off on Nifty as well; VIX managed to come up to 24 levels and OI in Nifty futures were hovering around 31.3 million through out the day. This is an interesting trend as all throughout Aug/Sep/Oct series, OI and volumes used to surge towards expiry and then take a 25% to 30% drop in the middle session of the series. November series though, has not seen OI and volumes drop relative to expiry volumes so far. The premium on both Nifty and Banknifty futures have been healthy despite steep cuts on the spot index prices. Critical levels remain unchanged and 2 gaps still pending to be filled on the downside. As indicated over the weekend, the Euro debt crisis solution announcement will just give cheer for a brief period and revert to the original course yet again. However it is still early to write off the western indices as well.

Crucial levels on closing basis have already been provided for DAX, Dow and FTSE. EUR-USD has printed below 1.38 which is a signal good enough to know that bears are preparing for a lethal attack on bourses soon; likewise, GBP-USD has peaked out above 1.61 and will retrace the entire rise from 1.55/1.56 levels within a month's time and both these pairs will impact Banknifty significantly. As of now, 9750 levels still seem to be holding out but with the EUR-USD/GBP-USD signal, one can short Banknifty as close to 10k as possible on rise [and as usual initially with a hedge]

For Nifty, 5032 levels still hold fort and will continue to do so for another week IMHO; BNF weakness will get bolstered only when it closes below 9500; stay hedged, stay profitable - some exciting times coming our way for profits in trade as well as long term investments. As usual, cash continues to remain king.

Monday, October 31, 2011

EOD Analysis for 31st October and Outlook for 1st November 2011

A mild start to the day following weak cues from Asia and the OI in Nifty futures was hovering around 31.4 million through out the day. Finally some fresh supply seen on Banknifty and it completed the long pending technical pull-back to 10k levels. 5032-5092 levels have now survived 13 consecutive trading sessions limiting the downside to 4980 for another 8 trading sessions IMHO. One dip to 5180 levels is due and we should be able to see this within this week.

Other levels remain unchanged for Nifty; for Banknifty, now that 10k region has been conquered, need to see whether we get 2 consecutive closes above 10k levels that opens BNF for a retest of 10250-10400 levels. On the downside, now 9500-9750 levels should provide interim support for the next 5 to 8 trading sessions. So far volumes have been good for the first 2 days of November series and the premium has been pretty healthy as well on Nifty and Banknifty futures. As usual, would like to remind all that Nov series is filled with holidays like October series was; options premiums will dry up fast and hence trading via futures might be a better option. Small caps and mid caps are providing some value buying opportunities but for largecaps, we would encourage waiting.

For instance, Infy going at a PE multiple of 20 and EPS of 150 comes to a fair price of 3000 but the future EPS guidelines are muted and for all analysts on media shouting new bull market is on - have to re-think again. As given in the weekend update, the larger scrips have nothing much in order books and the fundamental problem is a demand slowdown. So I would be very surprised if we don't revisit the 4980 levels by the end of next week [and possibly much lower closer to 17th Nov]

For now, blind shorting won't help and Puts will be like groping in the dark. Stay hedged - stay profitable