Thursday, February 5, 2015

Outlook For February 2015

Well I had some personal work that kept me away. The much awaited correction still hasn't come through and Nifty almost came to 9k levels in Jan series.

As I keep mentioning, this market has gone into an absolutely irrational mode and stock prices are well beyond any fundamental justification. However, for the short to medium term, technicals rule. As mentioned in the earlier post as well, I had clarified that I expect a correction but should there be a breakout from 8625, markets can easily run up 150-200 points on short-covering alone.

BankNifty went past the 20k mark, well beyond the pattern target and has corrected 1000 points from there already. Now the 18500-19000 band remains pretty good support while 18k levels becomes a very strong support. Budget months are very volatile. The last time we had a significantly volatile series in Feb was around 11th Feb 2011 when Nifty corrected significantly lower to 5177 levels and then rallied well beyond 5665 only to expire below 5400 levels.

So in terms of timing the 2nd week will be very interesting. Then of course we have the Railway and Union Budget at the end of the month. The Union Budget is expected to bring in a lot of positive surprises [a lot of which are already in the price]. However, due to the current sentiment in the market and the unlimited liquidity that is flowing from various central banks, it may not be a surprise to see Nifty take a shot at 9200 and BankNifty take a shot at 21400 levels.

This is certainly not a good time to enter the markets at such high valuations. This is the time to cut net long exposure from equities, mutual funds and move to gold, silver, real estate and FMPs. Stock specific opportunities will always be there and some of the prime contenders over the next 3-4 months IMHO are as follows

Asahi India: The stock is already at highs but this has some more steam to go [looking at around 165-170 levels over the next 6 months]

Kaveri Seeds: The company has become a force to reckon with and is very closely mirroring Monsanto, Bayer etc. The stock still has about 10%-15% upside over the next 6 months

In terms of shocks / major risks, a Russian debt default [or perhaps Venezuela, Iran i.e. any of the major oil driven economies] due to low crude oil prices can derail the global economy.

UK has elections in May 2015 and the market is expected to remain largely up till that major event goes through. Also in terms of statistics, the 3rd year of a US president [even more so if the president is in his 2nd term] marks a new high being made on stock indices, a mania for risk and then a sudden collapse. For those interested, one can just download the data for the US presidential years and look at stocks/index performance during the 3rd year of a presidential rule. The statistics largely favor significant highs in the first part of the year followed by a crash in the second part.

In 2015, a major collapse seems unlikely, given the significant liquidity. However, a healthy correction across the board is very much on the cards. Falls are definitely buying opportunities.

Good luck to investors as well as traders for Feb '15.
[Ps: It is going to be a trader's bonanza in Feb and Mar '15 if one plays out the cards well in either direction] 

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