EOD Analysis for 13th January 2012 and Outlook for 16th January 2012

Positive start to the day on the back of positive global cues and pretty good volumes as well. OI in Nifty futures hovering around 25 million in the morning session with VIX cooling below 24 levels; Banks, Tata Motors, Coal India, Tisco extending gains and BNF spot also showed a lot of steam. [One thing to note is that after adding significant premium to BNF futures yesterday, today towards Europe open BNF futures started trading at a discount and the forward contracts had more discounts than current month contract, quite unusual on this counter......caution advised] another 1 million added in Nifty futures OI with the rise later

Although Nifty managed to conquer 4880 today, the volumes and momentum did not support much unfortunately; Critical levels and outlook remain unchanged

For Upside: To the extent 4800-4840 band is active and 4880 crossed over with volume and momentum, Nifty can make an attempt towards 4911-4944-4994

For Downside:  Volume and momentum below 4795 can take Nifty down but IMHO, the 4690-4728 band will support at least once. A close below 4690 will bring in a lot of panic and then we need to brace for some steep cuts.


Other Updates and Food For Thought:

With the government asking for an extra pound of flesh in terms of dividends from PSU companies, one should not read too much into the upside of PSUs today in the index majors IMHO; Fundamental Analysis keeps asserting 'Dividend is the sign of a healthy company' - in principle, one can agree but with current head-winds and macro-economic situations, the same cannot be said about PSUs of India. Operating costs are no way rationalized yet and the fixed cost burden is very high.

Steel is sectorally weak still and there is a lot of pain still remaining in the sector; Precious metals are going through corrective rallies and steep falls await them IMHO. Yesterday's collapse on Comex for essential food staples [corrections in Wheat, Soybeans, Corn were significant] also is something we should not read into too much IMHO for 2 reasons

1] The charts had already indicated weakness and profit booking
2] There is a larger degree political game on-going here due to elections and the fact that a lot of producers are trying to create a supply shortage solution by increasing storage facilities and not buckling to bargain deals of the harvest season.

It would be very naive to assume that such measures will cool down inflation fears whether in India or abroad- we are still at about 20% YoY inflation on CPI basis. [Doctored numbers will probably help RBI maintain status quo]

Dow: To the extent 12200-12250 band holds out, we can expect a flick to 12550 odd levels before resuming the downturn. First sign of weakness with a close below 11800 and 2 consecutive closes below 11500 will confirm that a larger correction to retest the 10400 levels has begun; eventual targets are sub-10k levels

FTSE: Still some room to retest the 5700-5750 levels before heading lower. Initial weakness to be confirmed with 2 consecutive closes below 5550 and full weakness to be confirmed with a weekly close below 5300-5350 levels [this will confirm retest of 4900 levels at a minimum]

DAX: Still some room to retest the 6300-6400 levels before heading lower. Initial weakness with 2 consecutive closes below 5750

EuroStoxx50: Weakness only below 2125

Euro-Dollar: The current upsides are relief rallies and the pair is on its path to 1.25 odd levels

Hope you had a good trading week; wishing all readers greetings of the season and enjoy your weekend. Looking forward to another week of opportunities with high weightage on 17th Jan '12 [personal bias is downside but need to be alert on how things pan out. Option traders may be better off trading Feb options from Monday]

EOD Analysis for 11th January 2012 and Outlook for 12th January 2012

What a disparate show on benchmark indices - CNXIT taking steep cuts on expected lines whilst BNF showing remarkable resilience [and vindicating the hypothesis that about 3 months lag time can be expected on CNXIT to mirror Nifty's corrective mode]. VIX hovering around 25 giving respite to bulls

[However, one can see the intraday charts from 6th Jan to 12th Jan for which we had warned in advance of significant price fluctuations and trading opportunities for alert players]

Nifty futures OI was pretty stable at 25 mill and lots of stock specific action seen; Axis Bank continued to extend gains whilst today, SBI put up a brave front for most of the day. [ICICI Bank and HDFC Bank also were in positive territory] Metals pack still doing well and auto majors managing to hover around the surface.

To the extent market is able to hold the 4800-4840 band and volumes support, 4911-4944-4994 cannot be ruled out with 1 major hurdle at the 4880 zone; this needs to be conquered with volume and momentum. IMHO, all good news for banks has been fully discounted [dovish RBI stance, cash infusion in SBI] but investments by PSU banks to revive the economy is perhaps a negative for the short term and this is not reflected well in the Banking segment. At the expense of repeating myself, no major falls can come on Nifty unless Banknifty shows signs of weakness and goes down

[With all the headwinds doing the rounds all over and such steep falls on the KBW Banking Index, job cuts, I am personally not able to comprehend the strength displayed on BNF - but need to respect what is reflected on the ticker; my personal stance remains the same - Short via futures with hedges of course and drop the losing leg but with a longer term horizon, keep accumulating BankBees when BNF spot is in sub-8k levels as these units will deliver stellar gains with a 2-3 year horizon]

For tomorrow, I personally expect the 4690-4728 band to hold out in case of negative triggers and Friday factor coming out. [I know this may sound confusing so let me put it in perspective below]

For Upside: If 4800-4840 zone holds out and volumes support, 4880 is a critical resistance which if conquered with volume and momentum, we can expect Nifty to try for 4911-4944-4994

For Downside: First sign of weakness below 4795 with volume and momentum but IMHO 4690-4728 zone may once again provide some respite. Full weakness to be confirmed only after a close below 4690 and then we need to brace for a big slide!

2 downside gaps pending to be filled and that should happen within the next 3 weeks or so.

Erratta: I mentioned Friday being Makar Sankranti day by mistake yesterday but that is not the case; my apologies for the same.

EOD Analysis for 11th January 2012 and Outlook for 12th January 2012

Morning session saw OI in Nifty futures drop to 23.5 odd million and but as Europe session opened, another 1.5 million added. As mentioned earlier, to sustain yesterday's high [or for that matter today's high] and move up further at least 10% more volumes need to come in.

BNF's positive session IMHO, are clear indications of markets trying to discount a dovish RBI stance in advance and perhaps will end up making it a non-event if the dovish stance does come out [any disappointment in expectations from RBI can again set BNF to take steep cuts; not to forget that shorts in BNF and Axis Bank in particular have been royally trapped in the last 2 sessions!]

VIX still hovering around sub-25 giving some relief to bulls. CNXIT just not participating in these upsides but fortunately thethering on to 6275-6300 [the high of 6400 hardly lasted for any time] odd levels somehow [IMHO - this one can bring in a lot of disappointment in the next few weeks, particularly tomorrow with INFY's results and earnings guidance. Expecting PE rationalization in the near future to 15-16 levels from the current factor of 20 across the board for TCS, Wipro etc of which TCS has already got a major rationalization factor]

Critical levels remain unchanged and if volumes support, bulls may be lucky to see 4900+ levels within a couple of sessions. As far as news factor is concerned, on the domestic side, RBI policy and IT results will be a major factor in current series. On the international front, Euro woes will continue to dominate the scenario.

Expecting the 2 pending downside gaps to be filled within the next 3 weeks or so. Tomorrow may gain be a day of opportunities followed by 17th Jan as a high weightage day for Jan series.

On Friday, the day of Makar Sankranti, the action on bourses may not be very sweet but this date carries lower weightage - caution is advised and perhaps may be better to enjoy the festivity than risk trading margin.

EOD Analysis for 10th January 2012 and Outlook for 11th January 2012

Finally some increase in volumes today; a positive session saw OI in Nifty futures at about 24.5 million in the first half and another million added after Europe opened in the Green. As usual BNF [It is significant that BNF has slowly appreciated by almost 1000 points in 2 weeks time and has potential for some more - markets are trying to discount positive factors in advance!] led the gains and broader markets performed well but CNXIT was pretty lacklustre [with such a rise, was expecting to see 6425-6450 levels in CNXIT but that did not happen]

VIX below 25 - this gives a lot of relief to bulls for the time being.

IMHO, eventual targets are 7500-7550 odd levels on BNF spot and 5600-5700 levels on CNXIT before starting the fresh leg up.

In terms of relief rally, the minimal target for Nifty has been achieved [please see Raghuji's post made yesterday] and is slowly moving towards the optimal target.

So where do we go from here

Critical Resistances: 4880-4911-4944-4994

Critical Supports: 4640-4690-4728-4751-4800

Today's close above 4840 and close to the day's high is very significant IMHO and we should not be surprised to see an attempt towards 4944-4994 [provided volumes increase by another 10% at least]

Now only a close below 4690 will usher the panic once again and this is still very much possible during this series [to fill in the pending downside gap]

Other Updates:
Dow: Still has potential to go to 12450-500 levels and only 2 consecutive closes below 11500 can confirm that the relief rallies are over on this one and we have to say adios to higher levels for a long time.

FTSE: 5650 odd levels were expected on Santa Rally but they came in the New Year's week. This one too may just make one valiant attempt towards 5700-5750 before heading down and eventual target is 4900 in the next few weeks. Confirmation that relief rally is over with 2 consecutive closes below 5550 and full weakness after a weekly close below 5350

DAX: Perhaps, a flick towards the 6350-6400 levels with a dovish ECB stance before heading downwards to sub-5k levels. Weakness to be confirmed with 2 consecutive closes below 5750

Euro Stoxx 50: Weakness to be confirmed only after a close below 2150

Euro-Dollar: These are relief rallies and the pair is on its set path to 1.25 where some respite might come with eventual targets of 1.1850 odd levels.

Precious Metals:
Gold and Silver may see USD 1700 and USD 33 odd levels respectively in the near future in a relief rally but these will be opportunities to book profits as eventual targets are USD 1350-USD 1450 for Gold and USD 22-USD 23 odd levels for silver on Comex; the correction in Rollar will further impact prices in Indian markets IMHO

One should remember that nothing has changed fundamentally over the last 1 month [or for that matter last 2 weeks!] Some may call it the January effect, some may call it the election effect or whatever mumbo-jumbo.

There are a lot of slides pending on all bourses and the current upswings are opportunities to book profits or escape with minimal losses.

EOD Analysis for 9th January 2012 and Outlook for 10th January 2012

Price volatility and trading opportunities on expected lines but volumes still missing on the bourses; OI in Nifty futures continues to hover around the 23.5 million odd levels and this kind of volume cannot sustain the upsides. For the downside, such volumes buy time for falling but if it continues this way, the cookie will crumble soon. VIX below 27 is temporarily good and is ensuring slow and steady suction of options premium on both sides [Frog in the heating water casserole syndrome......]

Critical levels and outlook remain the same as outlined on Friday. Prices will be very volatile until 12th and then we have 2 more high weightage dates for Jan '12; 17th Jan and 30th Jan [and this will be factored for Feb series obviously]

As far as resilience from the IT pack is concerned, it seems like the market has already priced in the one time gains on forex differential and perhaps consolidating for the next fall. FMCG will be the last to fall. IMHO, one should not take the CNXIT stability as a positive divergence as there is enough historical evidence that BNF leads the rise/fall whilst CNXIT lags by about 3 months.

Euro-Dollar is slowly moving towards 1.25 levels and this may impact BNF. There are 2 more factors [one positive and one negative]

1] A potential dovish stance by RBI - positive factor
2] Deteriorating Credit Growth and surge in NPAs - negative factor

So we need to see how these pan out.
[Some of the points mentioned today on fundamentals are on the basis of a report in Economic Times]