Saturday, September 28, 2013

Outlook For October 2013

So, some excitement did come through after 22nd September, Fall Equinox. The German election result as of now seems a non-event. I have made one update and when I discuss Global Markets, will cover them more later in this post.

Coming to Nifty and BankNifty, let us first review the charts

Critical Levels as follows

As long as Weekly prices are above 5740, bulls can spring a surprise.
The most important level to watch out for is 5803 [+/- 15 points] on EOD 30th September. Holding 5803, the bearish possibility on Nifty gets delayed further. To call a 'Bull Market Breakout', 2 consecutive closes above 6280 are needed.

As I keep saying every month, so far we have never had a 'secular bull market' in India with Rollar above 48.25. Also Nifty so far has a jinx that when it opens in January above 6000 levels, it tanks to lows in the Oct-Dec period of that year (2008, 2011). Whenever we have had Nifty options in steps of 50, it has done badly for that year (2008).

The overall bearish conditions are satisfied but as my shorts in Sep got stopped out at 5740, I would not encourage fresh shorting till 5740 is breached on downside (Once bitten, twice shy). Many a time, people think that Not Bearish = Bullish and Not Bullish = Bearish as far as my outlook is concerned. I don't know about others but as far as Im concerned, my outlook goes Bullish - Neutral - Bearish - Neutral - Bullish. The 2nd part one has to bear in mind is the timeframe. As all seniors in the market will advocate, the higher timeframe view has more prominence than the lower timeframe view. The way prices are poised right now, this is my outlook

Daily Timeframe: Bullish till EOD > 5810 [This is to decide on taking a position for the next day]

Weekly Timeframe: Bullish till EOW > 5740 [This is decide a positional trade with 8-10 day horizon and reviewed every Friday]

Monthly Timeframe: Bearish till EOM < 5803 [This is to decide a positional trade with 4 weeks to 6 weeks horizon and reviewed on the last trading day of each calendar month, not expiry!]

To summarize, I could be bearish on daily basis but bullish on weekly basis and super-bearish on monthly basis. And not just me, any person with reasonable analytical skills will say the same. And also the fact that we have to be nimble footed and adhere to our SLs should the trade go against us and wait for the next signal to come. ('Itching' to take a position is trading suicide; discipline and patience is the key)

The levels are clear - so let us wait for Nifty to give the signal on 30th Sep '13. The preferred Bearish Count is still alive and I acknowledged missing out one crucial part in the EW analysis. The previous fall to 5118 was a 3 wave fall and hence a deep retracement was highly plausible. As long as prices are below 6225, the preferred bearish count is alive. Above 6225, that count goes out of the window for sure. The preferred alt 1 is already negated.

So there are only 2 plausible counts remaining

Bearish: 1 leg of fall pending on Nifty [1000+ points odd from CMP]
Alert Signal for INVALIDATION: Prices going above 6225
COMPLETE INVALIDATION: 2 consecutive closes above 6280

Bullish: Correction done at 5118 and new bull market has started
Alert Signal for INVALIDATION: Prices going below 5408
COMPLETE INVALIDATION: 2 consecutive closes below 5280

As I have also been mentioning regardless of where Nifty goes this year, next year is expected to be super-bullish after elections. So falls in 2013 must be used for accumulation. Preferred picks are NiftyBees, BankBees from the index based units; LT, SBIN, ITC, Tata Steel from the core index counters [Levels have already been given in previous posts] The index linked units ensure natural diversification of portfolio.
(Disclosure: Barring ITC and Tata Steel, I have long positions myself in other counters)

As of now Im Long Equities - Nil FnO. Long/Short FnO positions to be created after break-out / break-down signals emerge and will be updated on Twitter @NiftyParadox (Top left side of the blog)

Why things look super-bullish for India in 2014

Post-election results, most often than not have resulted in euphoria as the new government tries to scale down barriers for businesses and boost the economy. On a social mood phenomenon, India is at the cusp of an economic revolution just like the US was in 1980 [the roaring 80s as they called it]

During that time, the bond markets opened up big time, equities were soaring, the Dow made record highs. From a social mood perspective, the Billboard Chart Boards came up, more people started enjoying jazz, operas etc and the media space boomed. Fashion took new contours and there was a remarkable wave of freshness, cookery shows came up etc etc etc. Now just take a step back and see what is happening in India. Masterchef has gained importance, food is being looked upon as a lucrative business option, the colors in media be it films or television are all picking steam. Music has so many avenues and we have our own versions of Indian Idol, Sa Re Ga Ma etc etc etc. India's Best Dramebaaz, Dance India etc have gained significant momentum. Alternative cinemas are being embraced upon, people are becoming more fashion conscious and willing to experiment. People have become more open as far as relationships are concerned.

Social media has exploded and politicians are getting good stick for their foot in mouth diseases and customers are very punishing towards bad service be it from public sector or private sector. In Mumbai, open up the Mumbai Mirror and there are so many plays that are being patronized. 10 years ago, even a renowned theatre like Prithvi had to struggle to ensure adequate audience for plays. Only Gujarati plays, that too from a select audience used to get adequate patrons. Now, patronizing plays, music concerts is no big deal. More and more people are embracing them and these social indicators are very powerful signals. This India is changing for the better in many ways [and for the worse in many ways]

So the way I personally look at it, what US, UK witnessed in the roaring 80s, India will start witnessing post-election 2014. Also note the emphasis on 1980; [2014 = 1980 + 34; 34 is a Fibonacci Number] With so many different forms of analyses leading towards 2014, Im super-bullish as far as 2014 is concerned, post-elections of course. The downside of that is hyper-inflation and don't read too much into what Raghuram Rajan is doing now. He is carefully preparing his ground for Desi QE post-elections 2014.

Global Markets:

US: Don't read too much into the fiscal deficit debate in the senate. The US knows only one thing that is QE. They will continue to spend, continue to raise the debt ceiling and continue QE for as long as possible and as high a quantum as possible - period. They are now waiting to see the next Euro policy. Should the Euro-bailout move out, forget QE tapering, they will increase QE. Same is the case with the debt ceiling. If the debt ceiling is raised, then forget QE tapering, more QE will follow!
Republicans are fighting Democrats but remember which party created the Housing Mortgage Credit Crisis?
George Bush Jr + Allan Greenspan

The 2nd term of a US President has almost always been a disaster.

Germany: Merkel's key ally for Euro-bailouts has been ousted. The SPD whilst not anti-bailouts, is not pro-bailouts either. They want benefits of Euro bailouts to benefit common German people. This is a real problem in Germany because although the DAX is roaring, Germany's pro-Euro policy has helped German businesses and politicians. The common man is still struggling. Don't read too much into the fact that Merkel is coming back to power and she says that her Euro policy will continue as usual. With the new coalation partner and more resistance from Finland, Germany will pull the plug sooner than later on Euro-bailouts. The political landscape in Germany has changed drastically. We will see the results of the same in the next 6 weeks or so. The 3rd term for a German Chancellor has always been a disaster.

UK: Everybody is worried about the housing market bubble as jobs have not picked up. This entirely is the result of BoE 'Funding For Lending' QE policy. They have elections lined up in end 2014 or early 2015. So the bubble will continue but stocks will be under pressure as we run up close to the elections. (And remember that these are not new housing starts but erstwhile distressed properties that are being acquired)

Gold / Silver: They seem to have found their bottoms in dollar terms and will eventually turn up generating about 10% returns per annum

Crude: One fall towards USD 65-70 per barrel pending but prices will hover around the USD 100 per barrel mark with so much of QE happening all over.

Just a last note on Nifty; just as it happened in 2009, it will ignore bad news from the West and continue to soar higher. Expecting bumper new highs by Diwali 2014 on Sensex, Nifty, Gold, Silver et al

Yours Sincerely...........................Short-Term Bearish Long-Term Bullish Indian Analyst

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