Tuesday, July 1, 2014

Outlook For July 2014

So the initial part of June was good and after hitting an intraday high of almost 7700, it then slipped back to 7500 levels and kept drifting there about. So what next? 7200-7400 band is a very strong support band right now and at least for July '14, seems unlikely that this will be breached unless the budget is bad or there are external Black Swan Events.

Barring that, the euphoric sentiments, budget expectations and reactions to budget can either take Nifty to 7800 levels in July or it may slip back to 6900. 8th to 10th July can witness lots of whipsaws as people will be reacting to sections of the budget speeches etc. The news will try to comment on every little detail barring say a cough or sneeze by the finance minister!

What the markets really want to know are
1] Outlook for Growth? [Tax Holidays, Government Capex Expenditure etc]
2] Ease of Business [At least partial roll-out of GST, etc]
3] Cost of Capital [Largely domain for RBI]
4] Fiscal Prudence

As long as there is something to cheer for, a 5% upside from current levels is possible on the back of positive sentiments [remember that most of the positives have already been factored in the price] As long as there are no negative surprises here, the downfall is limited. However, since prices have already shot over the roof and lots of positives have already been factored in there is limited scope for upside as well. Until Diwali 2014, the index might manage to keep its head above 7k levels [barring Black Swan Events] The phase of distributing stocks is in process and distribution takes time.

Let us review the charts for Nifty / BankNifty on Daily / Weekly Basis

Nifty Daily
Nifty Weekly
BankNifty Daily
BankNifty Weekly
As seen in the charts and prices over the last 2 weeks, prices have been sideways for the last 2 weeks on Nifty and BankNifty. The alarming aspect on BankNifty are the ominous signs of distribution vis a vis prices and volumes. Nifty on the other hand is showing sideways correction with sectoral rotations.

However, at this point of time, as I keep reiterating on Twitter as well, it is not a time to build shorts. On the longer term equity investment funds, keep booking out and trim long positions. On the trading funds, wait for good dips and buy [futures / equities better than options] The risk-reward is tilted in favor of longs as long as the 7200 levels are held [positional] and 7400 level is held [2-3 days]. Bulls are in control of the market as long as 7200 level holds on closing basis. Of course, from a trading perspective, that will be too far away to book a loss. One can keep SL of 30-40-50 points depending on one's risk appetite. The best buying points in July series will be around 7400 levels or on 2 consecutive closes above 7550-7580 zone for a minimum target of 7700 and ideal target of 7800-7850 levels.

Other Updates
It still seems likely that Gold and Silver may have bottomed out in Rupee terms. Around 25k per 10 gms [give or take 2%] it is a recommended buy via ETFs like GOLDBEES, QGOLDHALF

Silver may test 35k-36k levels once before the next breakout

Oil is temporarily high due to tensions in the Middle East but things should stabilize soon. However, USD 90-95 mark seems to be the benchmark now with temporary blips over this threshold or below this threshold.

To recap, Nifty is approaching the last stage of its rally. Unless there is some major Black Swan event, Nifty may not correct too much as well and stay sideways most of the time [perhaps a budget rally now and a Diwali rally later and a corrective phase post-budget] Enjoy July for whatever upside comes through and wait for fresh signals to emerge. Keep booking profits on equities and deploy them on money market instruments [not NCDs though; stick to FMPs anf G-Sec Funds]

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