Tuesday, November 4, 2014

Outlook For November 2014

So Nifty did spring that Diwali rally surprise and also moved ahead to post a close above 8025 levels. As long as Nifty stays below 8180 levels, especially on closing basis, there is a potential downside risk of retesting 7550-7650 levels once. This has been confirmed with 2 consecutive closes below 7800 levels and it is only a matter of time when the same happens.

The jubilant rally after Diwali has stumped many people incl me especially after giving 2 consecutive closes below 7800. Some may say it was because of additional QE by Japan or whatever - but the fact of the matter is most people expected a rally upto 8150 [incl me]. I had mentioned that 8025 is a crucial hurdle and should we get 2 consecutive closes above this, Nifty may top out around 8150 levels by Diwali and start the downward march. Now we are in completely uncharted territory on both Nifty and BankNifty. It is very difficult to hazard a guess as to where the top will be. Going by historical price patterns a potential top area is 8380-8480 zone. However, shorts at this stage are not recommended till the downtrend asserts itself.

The earlier resistances on the way up i.e. 7800-7925-8025-8180 will be supports on the downleg whenever it starts. Of these 8025 and 7800 will be the strongest supports followed by 7450-7550. As mentioned earlier, it is not a question of whether 7450 will come but a question of when. As and when the signals are available, I will post the same via Twitter.

Charts uploaded for review

Nifty Daily
Nifty Weekly
BankNifty Daily
BankNifty Weekly

One should remember that Nifty is poised to test 7440 levels prior to budget 2015. This confirmation has come with 2 consecutive closes below 7800. If we recollect the historical price movements, it was known that Nifty would make life-time highs with 2 consecutive closes above 6280. This happened, Nifty went to 6415, came down to test 5950 levels twice [5971 once and 5933 once] and then went on to make new highs and rally relentlessly. It took about 4 months to make new highs.

Most people got the current move wrong including me and did not expect any major move above 8150. [I got a royal double whammy in this move; was expecting 8350 levels provided 7800 is not breached on daily/weekly basis. That happened and then when I thought the Diwali rally will last upto 8150, markets sprung the surprise!!!]

From an EW perspective, an alternate view was that an Expanded Flat is a possibility. However, even with my limited knowledge, an Expanded Flat cannot be attributed to this upmove. If prices had just hit say 8200-8225 and reversed, that possibility could still have been there. But certainly a move well beyond 8325 cannot be classified as an Expanded Flat. It was a very powerful and impulse wave rally. With multiple banking and cyclical stocks making fresh highs, it is an impulsive wave.

What this also tells us is that one should not rush to build shorts. 8425 levels is the basic pattern target. It has steam to go further up also but we are in a frenzy area. The rally is in the terminal stage and will fall at some point of time. The fall will be fast, furious and relentless just as the case was with the fall from 8180 to 7730. However, one should wait for the correct confirmations to emerge and then go with that trend.

November and December are both likely to be highly volatile months. Remember that most FIIs have to close their books as per the calendar year and hence they will need to book some profits and repatriate earnings back to their home bases by Christmas holidays. So both the pending upside and profit booking will be rapid towards the end of November with a consolidation in the middle phase of November.

Silver and Gold are time and again giving good opportunities to buy. Over a 5 year horizon, silver will retest old highs and likewise for gold. This is a good time to book profits in equities and move funds to fixed income, gold and silver. Gold had a relentless rally for almost 13 years and hence a pause / consolidation for a couple of years is fairly logical. Likewise silver [in dollar terms] has crashed almost 60% from its life-time highs. Eventually, they will come back to normal levels if not inflated and one must make use of current opportunities to buy.

MCX Crude should be able to find a bottom support at 4800 a barrel. [note that MCX crude prices are following support/resistance levels of Nifty in the 2010/2012 period]

5600 broke, it came down to 5200; 5200 broke it came down to 5032; 5032 broke and now its hovering around the 4911-5032 mark. So the logical support for MCX crude comes to 4800 and if that also fails [unlikely] then it will drift further to 4400 levels. Difficult to go below 4400 a barrel in rupee terms as necessary market steps will be taken by OPEC.

Enjoy the upside till it lasts; don't rush for shorts. However, be prepared for a fast and furious fall prior to budget 2015 and enjoy that ride as well!

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