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.