So 5740 did not hold and RBI did not cut rates and Rollar breached the 60 mark [in the futures market]
Wild swings that were expected in the 15th June 2013 to 26th June 2013 came through as expected
Where do we go here from now?
Let us review the charts first;
Nifty Daily
Nifty Weekly
BankNifty Weekly
Nifty gave both the signals i.e. 2 consecutive closes above and below 5740 thereby telling us that the 2 major targets for the next 6 to 8 weeks are 5408 on downside and 5944 on upside [one bounce has come from 5550 levels {5566 this time}One more test of this level will fall through IMHO]. Please note that markets will try to consolidate and the moves may not be so linear. This is the range for a 2-3 month period and weekly charts showing a potential Head and Shoulder formation.
BankNifty has cracked a lot and has taken support at the 11k mark this time; last hope for BNF bulls lies at around 10200-10400 band after which falls will be accelerated. However for July series, the range is split wide open at 10200 on downside and 12400 levels [61.8% retracement of last fall]
Both possibilities mentioned in previous 2 series stays intact
Bullish View: Current falls are profit booking / consolidation rounds and the bull market is intact. This possibility is only negated with 2 consecutive closes below 5280
Bearish View: We are in the last corrective phase downwards [previous tops of 6357 in Jan '08 and 6338 in Nov '10] giving downside targets of 4373-4531-4693-4770. This possibility is only negated with 2 consecutive closes above 6280 levels.
As usual I'm leaning to the bearish possibility for reasons as usual; secular bull markets in India usually need Rollar below 48.25 levels; we have an election year coming up and hence we should expect markets to be buoyant only after political certainty. Also there are a lot of global uncertainties that can wreck havoc at any given point of time.
However, I will be keenly looking at falls as buying opportunities in the equities segment as the chances of them paying off handsomely by end-2014 are very very high.
2 stocks that IMHO are approaching buy zones on delivery basis are Tata Steel and JP Associates
Tata Steel: Buy zone is 240 - 270 zone; the stock pays a good dividend and though 2013 is weak for steel, the stock seems oversold and when markets do recover, this may be a good candidate [expecting a target of 475 in a 3 year horizon plus 45-65 to be made on dividends in a 3 year period] One should exit the position with a weekly close below 200 on this counter [Maximum 5% of investment corpus]
JP Associates: High Beta stock that has been badgered due to its dollar denominated debt. 35-48 is the accumulation band for a 2 year target of 80+ levels. [Maximum 2.5% of investment corpus] Dividends are not great and the counter has a strong potential to join the likes of IFCI, IVRCL, Opto Circuits as well. Hence caution on the corpus as well as a strong case for exit should the price fall below 35 on weekly charts.
Other stocks are still quite a distance away from the accumulation band and I will update the blog as and when prices come to those points.
Stocks to Avoid:
IT pack is rallying on the back of a weak rollar; as the headwinds in the western world unfold, there will be increasing pressure on IT companies to promote local talent and barriers to Indian IT firms will go up. The IT sector is poised for a royal downside IMHO
Automotive Pack: Most of the upsides for 2013 have already been priced in; this pack is poised for a strong corrective leg now and the downside will be far more severe in the event of a Euro-zone break-out as the peripheral European countries will end up being far more productive and cost-effective than Indians
Global Markets Update:
Gold and Silver are in accumulation zones right now; there is excessive pessimism because of margin calls and flight to safety for dollars. But before one knows it, all pessimism will be forgotten and the longer term trend is UP for both gold and silver; 2 year targets are USD 1925 per ounce for gold and USD 40 per ounce for silver.
China contrary to what is being reported in media is actually in accumulation zone now and IMHO will outperform global indices over a 3 year horizon
FTSE, Dow, DAX EuroStoxx are all set to fall 20% from current levels. As in India, even in these cases, its just the indices that are being stage managed.
Bond Markets are showing signs of cracking [be it the mortgage bonds of Denmark, Eurobond trades in Sweden, Asset Backed Securities in transportation or Municipal Bonds - the stage is pretty similar to the case prior to the Saloman Brothers case in 1987. One should read the book Liar's Poker by Micheal Lewis to get an insight on this point] Bond Markets signal very early on what to expect in equities and global economies over a 6 month to 12 month period.
One should not read too much into the housing market recovery in US / UK; as mentioned in April, it is very common to see buying interest move up when the mortgage payments get aligned with the rental outflow. Barring a couple of locations in the West Coast of US where the buyers are from the high-tech industries of Silicon Valley, there is not much inventory added. [If the recovery was so stellar, then San Franciso price hikes should have had a similar effect on homes in other parts of California and Nevada where prices are still reeling and are nowhere close to previous peaks]
Most of the housing inventory is formed by the foreclosed homes post-2008 that were subsequently written off with the aid of trillions of dollars of QE. Now the same homes are re-appearing on inventory so it is not real growth!
Nevertheless, the crux of this blog is to focus more on Nifty and stay with the big picture here; range for the next 2 months expected to be 5408 - 5944 and that gives alert and sharp traders to do well. Except at crucial points like 5944, 5740 and 5532, one should resist the temptation to build OTM Straddles via options [give or take 20-30 points on either side]. These are the only 3 points where straddles can yield good pay-offs IMHO.
Wild swings that were expected in the 15th June 2013 to 26th June 2013 came through as expected
Where do we go here from now?
Let us review the charts first;
Nifty Daily
Nifty Weekly
BankNifty Weekly
Nifty gave both the signals i.e. 2 consecutive closes above and below 5740 thereby telling us that the 2 major targets for the next 6 to 8 weeks are 5408 on downside and 5944 on upside [one bounce has come from 5550 levels {5566 this time}One more test of this level will fall through IMHO]. Please note that markets will try to consolidate and the moves may not be so linear. This is the range for a 2-3 month period and weekly charts showing a potential Head and Shoulder formation.
BankNifty has cracked a lot and has taken support at the 11k mark this time; last hope for BNF bulls lies at around 10200-10400 band after which falls will be accelerated. However for July series, the range is split wide open at 10200 on downside and 12400 levels [61.8% retracement of last fall]
Both possibilities mentioned in previous 2 series stays intact
Bullish View: Current falls are profit booking / consolidation rounds and the bull market is intact. This possibility is only negated with 2 consecutive closes below 5280
Bearish View: We are in the last corrective phase downwards [previous tops of 6357 in Jan '08 and 6338 in Nov '10] giving downside targets of 4373-4531-4693-4770. This possibility is only negated with 2 consecutive closes above 6280 levels.
As usual I'm leaning to the bearish possibility for reasons as usual; secular bull markets in India usually need Rollar below 48.25 levels; we have an election year coming up and hence we should expect markets to be buoyant only after political certainty. Also there are a lot of global uncertainties that can wreck havoc at any given point of time.
However, I will be keenly looking at falls as buying opportunities in the equities segment as the chances of them paying off handsomely by end-2014 are very very high.
2 stocks that IMHO are approaching buy zones on delivery basis are Tata Steel and JP Associates
Tata Steel: Buy zone is 240 - 270 zone; the stock pays a good dividend and though 2013 is weak for steel, the stock seems oversold and when markets do recover, this may be a good candidate [expecting a target of 475 in a 3 year horizon plus 45-65 to be made on dividends in a 3 year period] One should exit the position with a weekly close below 200 on this counter [Maximum 5% of investment corpus]
JP Associates: High Beta stock that has been badgered due to its dollar denominated debt. 35-48 is the accumulation band for a 2 year target of 80+ levels. [Maximum 2.5% of investment corpus] Dividends are not great and the counter has a strong potential to join the likes of IFCI, IVRCL, Opto Circuits as well. Hence caution on the corpus as well as a strong case for exit should the price fall below 35 on weekly charts.
Other stocks are still quite a distance away from the accumulation band and I will update the blog as and when prices come to those points.
Stocks to Avoid:
IT pack is rallying on the back of a weak rollar; as the headwinds in the western world unfold, there will be increasing pressure on IT companies to promote local talent and barriers to Indian IT firms will go up. The IT sector is poised for a royal downside IMHO
Automotive Pack: Most of the upsides for 2013 have already been priced in; this pack is poised for a strong corrective leg now and the downside will be far more severe in the event of a Euro-zone break-out as the peripheral European countries will end up being far more productive and cost-effective than Indians
Global Markets Update:
Gold and Silver are in accumulation zones right now; there is excessive pessimism because of margin calls and flight to safety for dollars. But before one knows it, all pessimism will be forgotten and the longer term trend is UP for both gold and silver; 2 year targets are USD 1925 per ounce for gold and USD 40 per ounce for silver.
China contrary to what is being reported in media is actually in accumulation zone now and IMHO will outperform global indices over a 3 year horizon
FTSE, Dow, DAX EuroStoxx are all set to fall 20% from current levels. As in India, even in these cases, its just the indices that are being stage managed.
Bond Markets are showing signs of cracking [be it the mortgage bonds of Denmark, Eurobond trades in Sweden, Asset Backed Securities in transportation or Municipal Bonds - the stage is pretty similar to the case prior to the Saloman Brothers case in 1987. One should read the book Liar's Poker by Micheal Lewis to get an insight on this point] Bond Markets signal very early on what to expect in equities and global economies over a 6 month to 12 month period.
One should not read too much into the housing market recovery in US / UK; as mentioned in April, it is very common to see buying interest move up when the mortgage payments get aligned with the rental outflow. Barring a couple of locations in the West Coast of US where the buyers are from the high-tech industries of Silicon Valley, there is not much inventory added. [If the recovery was so stellar, then San Franciso price hikes should have had a similar effect on homes in other parts of California and Nevada where prices are still reeling and are nowhere close to previous peaks]
Most of the housing inventory is formed by the foreclosed homes post-2008 that were subsequently written off with the aid of trillions of dollars of QE. Now the same homes are re-appearing on inventory so it is not real growth!
Nevertheless, the crux of this blog is to focus more on Nifty and stay with the big picture here; range for the next 2 months expected to be 5408 - 5944 and that gives alert and sharp traders to do well. Except at crucial points like 5944, 5740 and 5532, one should resist the temptation to build OTM Straddles via options [give or take 20-30 points on either side]. These are the only 3 points where straddles can yield good pay-offs IMHO.
