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.

Thursday, November 17, 2011

EOD Analysis for 17th November 2011 and Outlook for 18th November 2011

What a day! BNF saw a short-covering rally and then melted far more than it gained due to the weak global cues for financial sectors [in fact, the low levels we saw today on BNF were due yesterday itself with such steep falls in Euro-Dollar and high bond yields on PIIGS debt] The volumes supported the fall today and there is still a lot of short-covering pending. A corrective bounce is due in Euro-Dollar as well towards the 1.35-1.36 mark IMHO that will provide some relief. FTSE is moving towards the expected target but is on tenterhook support zone of 5400-5440-5480 whilst DAX is still having critical support at 5800-5860-5900 and lots of short-covering pending there as well [eventually the destinations for Euro-Dollar are 1.28-1.32 levels, FTSE T1 @ 5300 T2 at 4800; DAX T1 @ 5600 and T2 sub-5k levels with pauses and relief rallies in between]

Initially, we expected that these levels [5300 on FTSE, 5600 on DAX] may be achieved this week itself but with so much short-covering pending and a potential bond buy back from ECB, it may take slightly longer. Today, I would like to take the opportunity to thank the entire team for contributing to the time analysis - this is the 3rd time we have alerted readers about large swing opportunities and as my lovely spiderman says - trade little - trade healthy! [21st June whilst all were bearish, we said markets will go up on mmb; when things were hunky dory in September, we stuck our neck out and said steep falls expected closer to 22nd September; 16th Nov to 22nd Nov will witness a lot of weakness and volatility that turned out true once again and has reinforced the team's confidence with time analysis. We still have a long way to go and also have to concede that a lot of interim level forecasts have not been up to the mark and we are trying our best to improvise on that and in due course of time, improve accuracy for shorter term objectives as well]

Now - why some upside can come now [albeit relief]; SnP 500 chart has thrown up an interesting CT [and price was above 1230] and Dow has managed to stay afloat yesterday at 11900 levels- the CT as per EW or Wedge / Pennet as per classic TA on SnP indicates that it could be a break-down or break-out in the next few sessions. ECB bond buyback program, potential stimulus from Fed can give a breakout on US bourses [SnP still has room to make a poke towards 1270-1290 levels despite all the negativity and Dow still has potential to make 1 more poke towards 12200 levels] On closing basis if SnP breaks 1230 levels today and Dow breaks 11800, then safe to assume that more trouble awaits the markets.

Coming back to Nifty, 5092-5032 zone is gone; 4911-4944-4994 was a good bounce back zone. 3 times 4994 supported yesterday and today and 4911 still held firm. If the cheer comes through in Europe and US tonight, then Nifty has potential to try for 5032-5092 zone once again. Bulls desperately need 2 consecutive closes above the 5092-5125 zone to keep their hopes alive. Although other markets have lots of falls pending, Nifty may be close to bottom; as highlighted last weekend, the current falls are very dangerous as the broader markets are getting beaten down to the core and are not showing any signs of recovery.

So the critical levels remain unchanged and bears [incl me] need to be on alerts as 1 more leg up is still very much a possibility. Infy managed to hold 2750 on closing basis today, HUL is still holding the 390 mark on closing basis and pharma is also showing some defensive prowess. From time to time we keep mentioning that there is no perpetual rise or fall. At least until the end of this expiry, 'bullish tsunami' waves on Nifty can sleep in peace; In all likelihood, Nifty will find its bottom in the 4450-4550 zone and then move upwards

Hope you enjoyed the profits - we certainly did [happy to be able to say that after 3 weeks where hedges ended up saving us rather than the core positions!]

Wednesday, November 16, 2011

EOD Analysis for 16th November 2011 and Outlook for 17th November 2011

Negative global cues on open itself and a big blow to Asian markets today with Euro-Dollar going well below 1.35 levels in the morning and it was a definite blood bath across sectors. Twice in the day we breached the 5k levels but the 4994 levels seemed to provide the relief that was needed for now at least. Euro-Dollar has regained the 1.35 mark for now and European bourses also saw some good short-covering as I put this blog out. As indicated earlier, Nifty would get softer as we move towards 16th November and 16th November to 22nd November are extremely volatile days.

The OI in Nifty futures was hovering around the 33 million mark today and the VIX surprisingly is still hovering around the 26 mark. For accelerated falls, the VIX needs to be above 28-29-30 mark [one should remember that in August and September when Nifty was at sub 4800 levels, VIX was in the region 32-33.5]
BNF saw a short build-up but some good short-covering later.

DAX is trading firm above 5900 again and FTSE is also above the 5500 mark as I put up this blog. Weakness in Europe to be confirmed with FTSE below 5400 [looking for 5300 in a few sessions] and DAX below 5700 [looking for 5600 on DAX in a few sessions]. From US, first sign of weakness below 11800 on Dow and full weakness below 11500 [correspending levels on SnP 500 will be 1230 and 1190 respectively IMHO]

For Nifty, unless bulls manage 2 consecutive closes above 5092-5125 levels with huge volumes, bears can launch an attack again. On the other hand, despite 2 steep falls, 5032 levels survived another day. [adjusted close shows 5030!]

Critical levels remain unchanged.

Tuesday, November 15, 2011

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

A modest start to the day's play and the OI in Nifty futures was just a shade over 30 mill; With Euro-Dollar going below 1.36, the ominous signs for BNF were all over the place. All it needed was a trigger from Europe where the markets are taking steep cuts. Towards the end, the OI in Nifty futures surged another 2 million with the fall. After holding firm for 21 trading sessions in a row, 5092 gave way today but 5032 has survived. At this juncture, the downside may not be restricted to only 4980 but as mentioned earlier, there is no perpetual rise or fall. Lots of shorts are pending to be covered and the Euro-Dollar rate will have significant impact on BNF especially. The greater the pips shed by Euro-Dollar, greater will be the impact on all bourses incl Dow, SnP, Nasdaq as well.

Now the pending target for Euro-Dollar is 1.3475 with some consolidation and eventual target is 1.32 in a few more weeks. FTSE is expected to hit 5300 and DAX is expected to hit 5600 which as of now seems very likely by the end of this week but we keep our fingers crossed as there is interim support for FTSE at 5480 and 5550 levels; likewise, there is interim support at 5800-5860-5900 for DAX

For Dow, a clean sweep below 11800 is initially required to confirm  a synchronous bear market across the globe and total weakness to be confirmed with a close below 11500 [corresponding targets on SnP will be 1230 and 1190 respectively]

For Nifty, critical levels remain unchanged; 5032-4980-4944 are all critical supports where one may expect some short-covering. There is 1 big gap between 4750-4880 but that can only be filled after a close below 4880. Such steep cuts on broader markets but VIX is still a shade below 27; accelerated downfalls can only be witnessed on Nifty when VIX shoots past 28-29-30 levels and OI in Nifty futures goes in excess of 34-35 million. On the upside, OI of 30-32 million in Nifty futures on the rise can only signal short-covering IMHO

Monday, November 14, 2011

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

A positive start to the innings with Nifty futures clocking an OI of around 29.6 mill during the first half of the day and then waiting for cues from Europe.


Critical levels remain unchanged and we are slowly moving into the dangerous period anticipated on the bourses from 16th Nov to 22nd Nov as highlighted earlier. Now the downside may be limited if 5032 - 5092 levels survive on closing basis tomorrow IMHO and the downside may just be restricted to 4980 levels during this series if bulls manage a close above this critical zone tomorrow. Otherwise, floodgates open up on the downside this time [to be confirmed with a close below 4880] So rather than blind shorting, one should see whether 5032-5092 levels hold fort tomorrow on closing basis.

As we have been highlighting earlier as well, the critical levels need to be observed carefully along with volumes as well. Auto sector finally saw the pounding it rightfully deserved after the Diwali euphoria. Sales have slowed down, locally as well as globally. Steel sector remains fundamentally weak as shown by Tisco's disco and Sail's pail performance.

On the other hand, volumes will have a say at severe downfalls as well otherwise it will just be modest cuts. Infosys still holding above 2800 levels although they have declared across international media that they are expecting cuts due to slowdown in the west. RIL took a very modest cut today compared to some of the other index heavy weights as well.

The Euro-Dollar is showing signs of weakness but one must also bear in mind that the Italian bond yields have managed to cool down a bit; DAX went a shade ahead of the 6100 mark but still holding the 6k levels as I put this blog. FTSE also staged a counter-trend rally towards the 5550-5600 levels and is showing signs of tiring. Euro-Dollar is marginally below 1.37; Full weakness to be confirmed below 1.365 on closing basis and the pending target for Euro-Dollar is 1.3475-3495 in a few sessions that will take a severe toll on DAX, FTSE, SMI and in turn BNF, SGX Nifty and Nifty;

Would like to remind readers once again that since we are in a corrective phase on the bourses, there is significant positive correlation with the above mentioned factors. Also, FMCG and Pharma counters proved their defensive merit today in a falling market. So whilst 'Sell on Rise' is the preferred strategy, in the initial stages of the trade, hedges must be employed and to be given up only on confirmation of the trend.

One way to confirm the momentum is to plot TRIX (8 period) along with Twigg's Money Flow (21 period MA) for a second level confirmation. TRIX above 0 implies momentum is UP and below 0 implies momentum is DOWN; TRIX (8) crossing over TMF (21 period MA) will confirm the bearish trend [and vice versa for uptrend] and would advise using these indicators on the daily chart and hourly charts simultaneously to determine the primary trend.