EOD Analysis for 16th December 2011 and Outlook for 19th December 2011

Volumes still a concern when it comes to the rise for Nifty but swiftly comes in with the falls; case in point, OI in Nifty futures hovering around 24 million despite such a positive session in the first half and over 27 million for the falls in the afternoon session. BNF retested sub 8200 levels as expected [expectation was 8280 for this week but went below that as well by a good margin, thus opening the potential of retesting the 7800-8000 zone]

VIX shooting above 29 and a new low also made on Nifty. 1 close below 4720 ticked i.e. scope for option1 is still open. Excessive fear on the bourses and yet again we saw 2 significant movements today; options data on Wednesday had shown huge addition in OI for 4700 PE and 4800 CE; my interpretation for this failed! rather than being range-bound, both levels were pierced in 2 sessions and options premiums were royally crushed on both sides.

Lots of short-covering pending, potential Santa rally pending but with the close below 4720 and head winds, caution is advised. 4994 is a realistic target on the upside even now but longs should be initiated with appropriate hedges only. [The weekly close is almost short of 200 points of last week's close and marginally above the lowest low clocked in 2011]

Will be back in action from Monday again; enjoy the weekend. As far as global markets are concerned, the outlook posted earlier this week prevails and no changes to that.

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

No major changes in OI even today despite a broad trading range. Good short covering seen after Europe open considering the pretty negative session in the morning. Banknifty still managing to hold the 8400-8500 zone but some more pain expected here. CNXIT is also due for some correction though the way counters are rebounding from the lows of the day are pretty encouraging. Premiums on futures are pretty healthy and that is a good sign for the days to come IMHO.

Critical Levels remain unchanged i.e. critical supports are in the 4720-4750 band and critical resistances are in the 4840-4880-4911 region. Short-covering can take Nifty to 4994 but need fresh longs to go beyond.

Some perspective on the corrective mode we are in
As per my personal analysis, there are 2 possible options from an EW-Fibo perspective of the downside targets

Option1: We take the First Major Corrective Wave from 6338 to 5177 = 1161 and hence the complete corrective wave structure should in the end have around 1.618 times initial length from the point where the correction started. [Can go upto 2.618 also but considering the time factor, inflation adjustments etc, 1.618 seems reasonable enough to me]

This gives us 6338 - 1.618(1161) to about 4460 levels; since this is on Py degree, time will be anywhere between 8 months and 25 months [PyA from 6357 to 2252 happened in 8 months, 2252 to 6338 happened in about 24 months]. And it is no surprise to see massive corrective rallies in between as we have been following Euro-Dollar literally [Euro-Dollar 1000 pips down, 630 pips up {1 pip = 0.0001} whilst on Nifty, we have roughly been doing 1160 points down, 650 points up]

This option says some more correction pending on our bourses.

Option2: We take it on one degree smaller i.e. just the November '10 correction 6338-5690 = 648
Since this is on a smaller degree, the maximum correction across the full structure will be 2.618 times initial length.

6338 - 2.618 (648) = 4641 in about 13 months.
With this option, one can conclude that the correction is over and now the markets will consolidate for a few more weeks before starting the next leg up.

Looking at the global cues and the way Dollar Index is spiking and the sharp correction that took place in gold last night [margin calls in all likelihood], my personal vote is for Option1

Confirmation that correction got over at 4640 levels ONLY AFTER we get 2 consecutive weekly closes above 5250 levels. So players for the long run can start looking at good scrips and adding them to the DP account with a 2-3 year horizon regardless of which option is in play. I have not an iota of doubt in my mind that sound businesses purchased in SIP mode now until the next 4 to 6 months will deliver a CAGR of 30% or more by Diwali 2014

For a trading perspective, confirmation that Option 1 in play ONLY AFTER a 2 closes below 4720.[1 close below 4720 can only go upto 4600-4640 levels IMHO]

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

OI in Nifty futures still hovering around the 24-25 million mark that is not able to sustain the upside momentum but not accelerate the falls either. Euro-Dollar has confirmed the technical signal for the next major destination to be 1.1850 in a phased manner of course [should be about 8 weeks]. Dollar Index in fact now has a minimum target of 81 and can notch a bit higher when the dollar denominated obligations turn up for dues. BNF will almost certainly retest 8280 levels and we should not be surprised for a retest of 7800 levels in the next 90 odd trading sessions.

FTSE is on its way to retest the 4900 levels but that may take a little more time; probably after the Santa Rally. Like-wise for the DAX, EuroStoxx as well. To the extent 11800 holds out on a weekly close basis for now, a Santa Rally to 12200-12400 levels is very much on the cards for Dow. It will be the last to fall in all likelihood. 2 consecutive closes below 11500 now and it is adios to higher levels for a pretty long time. [All indices on weekly charts are displaying a classic HnS pattern and the necklines will be plunged royally in a few more weeks]

Critical Levels remain unchanged; 4720-4728-4751 remain critical supports and 4840-4880-4911 remain critical resistances. Short-covering can take Nifty upto 4994 but beyond that we need fresh longs and buying.

Huge OI addition in 4700 Puts and 4800 Calls that may keep the index in a narrow range for a couple of days; a close below 4720 will invite retest of recent lows and we may see a new low before the Santa Rally. It is very critical for bulls to stage 2 consecutive closes above 4880 asap to be able to take Nifty to some respectable levels.

EOD Analysis for 13th December 2011 and Outlook for 14th December 2011

Yet another gap down courtesy weak global cues but today's gap-down was filled in the morning itself. From morning to middle session, the OI in Nifty futures was hovering around 23.5 to 24 million and VIX was pretty much unchanged. The last hour volatility added another million in OI whilst VIX cooled a bit [Shorts were royally trapped and chopped within 20 minutes!]. Such moves also highlight the importance of maintaining Trailing Stop Losses on positions that lock in the gains on profitable positions. Upto 4994, IMHO it will just be short-trapping and short-covering [volume conditions given yesterday and the day before]

As expected, the Euro-Dollar / Rollar are taking toll on BNF. Adding to the woes of 2 major BNF components are Credit Default Swap Premiums in the Asia Pacific market for ICICI Bank [i.e. the Bond Markets think a greater proportion of ICICI Asset Books are unsecured and capital infusion challenges for SBI - source for both these news bites courtesy Bloomberg] and thus, a test of 8280 on BNF is on the cards soon. Premiums on Nifty as well as BNF are pretty healthy now despite such low levels on spot indices. That being said, the rise from sub-8500 levels to almost 8600 levels today is also a morale booster for this counter. Again upto 8800 will just be a technical pull-back aided by short-covering.

Markets are still not out of woods and it is actually the IT majors that are giving some respite to the indices and RIL gave some cheer after the news on cash reserves came out [perhaps some short-covering as well]. On a longer term basis, RIL has potential to deliver some gains but we must be aware that even on monthly charts, this counter is stuck in a broad range of 600-1200 and then the bands get narrower as we move to weekly / daily charts.

Steel continues to remain weak and so will auto-majors for the time being. The bearish outlook for Nifty stays until the end of this week. 4911-4944-4994 continue to be strong resistances for the ultra-short term but a Santa Rally is on the cards. Euro-Dollar staged the first close below 1.3275 overnight and it is very critical to regain this level overnight today. In case it closes below 1.3275 today as well, then the next logical destination is 1.1850 in a phased manner of course [1.5 to 1.38 across 3 weeks in April; a 62% retracement to 1.44 levels across the next 5 weeks; 1.44 to 1.34 and then a 62% retracement to 1.385 levels; a sharp fall to 1.3175 levels now i.e. it is falling 1000 pips roughly and gaining 630 pips roughly and pretty much a 3-5 week cycle being followed for the falls and for the rise!]

Regardless of what Moody's, Fitch or SnP say about Euro-zone and downgrades, markets have discounted the challenges through Credit Default Swaps and Bond Yields. Dollar Index is headed to 81; The real challenge is almost nobody knows the degree to which these transactions have been leveraged and who are the under-writers. It is one thing to say we have a net credit taking MTM values of Long-Short positions and another to have the break-up because the MTM net credit is worth only if the counter-party insuring the debt is solvent; if not, it is a double whammy for financials and this is a highly probable outcome when the event takes place.

Looking for a bottom to be established for Nifty @ 4450-4550 and BNF @ 7800-8000 levels in the near future. Nothing much to add except for the fact that we are on the cusp of bottoming out on Nifty, some consolidation and then the upward march should begin. I would not lend too much credence to western analysts talking about BRICS under-performing in 2012-2013 etc; the longer term cycles clearly establish that Asian markets top and bottom out much earlier than western indices and Dow tends to be the last; case in point whilst Nifty and Hangseng topped out in last quarter of 2010 and started falling, FTSE topped in Feb '11 and Dow topped out in May '11; there is still the possibility of Dow retesting the 12200-12400 levels [again repeating 12200 has been achieved and 12400 is very much a possibility even now].

Even with a slow-down, BRICS will be growing at over 6% despite inflation and high interest rates. There are election pressures in a lot of countries in the next 6 months at state or country levels so the hot money inflows would wait and there are always liquidity pressures that may drive some sales further. In the period March 21st to June 21st 2012, we can expect the next phase of bull run to begin on Nifty.

For tomorrow, 4720-4728-4750 will be critical supports and 4840-4880-4911 will be critical resistances.
[Have made some lengthy posts since Friday to throw light on both domestic and international factors for fundamentals and some longer term outlook] Now until Friday, expect shorter posts with critical support, resistance levels and some stock specific advice only

EOD Analysis for 12th December 2011 and Outlook for 13th December 2011

A positive start to the day and then bit by bit, Nifty gave up all the gains and corrected heavily. OI in Nifty futures dropped sharply today and was clocking about 23.5 million - 24 million. This kind of volume will not be able to sustain upside momentum; 4911-4944-4994 continue to be resistance areas and short-covering can take it to these levels provided the volumes increase and least match those that we saw on Thursday/Friday [25-26 million OI in Nifty futures]

For the downside, lack of volumes can delay but not prevent the fall. VIX is pretty high and at one stage almost hit 30 [Inference: panic buttons are on] Euro-Dollar has given up the 1.33 level 2 consecutive closes below 1.3275 and it will race to 1.1850 [not overnight but this is technical signal enough to see where it is headed!] This implies Dollar Index will race towards the 80-81 mark and bring more pain across the bourses.

INFY continues to show some resilience and weakness to be confirmed here only after a close below 2650; IMHO, this counter is due for some profit booking now - so far in 2011, this counter has started its downside after hitting 200 DMA consistently [with the exception of first quarter when the 52 Week High was made] Sarmaji has given a Short Call on INFY today on the basis of his astrological studies and left it to me for the levels. 2750-2780 is the ideal shorting band IMHO or below 2700 for T1 = 2675, T2 = 2650.
Oil and Gas continues to be negative for this week i.e. counters like RIL, ONGC are 'Sell on Rise' counters. Futures recommended as the options are quite illiquid in case of ONGC.

FTSE has given the technical signal with 2 consecutive closes below 5550 of which Friday's close was a weekly close below 5550. Some relief rallies may come via short-covering / Santa Rallies but this counter is headed to 4900 levels now and once 4900 is breached on closing basis, floodgates will open for a journey further south.

Based on the close on Friday, a retest of 4750 was on the cards and we saw a day low of 4755 odd levels today. So at least now, some short-covering should come through; BNF has cracked a lot on the back of Euro-Dollar and also gave up the crucial 8600 levels [and almost 8500 towards the end!] at one point of time today. A technical pullback at least to 8800 levels should be on the cards before markets decide where to go.

Amongst auto majors, M&M has almost hit a crucial support level of 680-685 levels so some corrective bounce may be due here; a close below 680 may invite a retest of 650 odd levels whilst 2 consecutive closes above 690 will open M&M for 725-750 levels. Tata Motors has given up the 180 levels but 165-170 zone may provide some interim support. ONGC hit 255 and we should be able to see some short-covering on this counter from 250-255 levels before it decides where to go next.

A close below 4728 will almost certainly invite a retest of the recent lows of 4640 levels; I must say, even I have been stumped by the extent of falls today; considering the level of shorts that came into the system last week, I was expecting some upside to come through before the retest of 4750 odd levels but that has come through today itself. Call Writers are making hay and Puts are still winning so far. At least for December series, expecting a bottom to be formed by the end of this week and a Santa Rally from 20th December or so from whatever levels we are at.