Wednesday, July 1, 2015

Outlook For July 2015

Well it has been a very exciting June series on expected lines with large swings in either direction.
The Grexit woes are currently looming large. I won't get too much into the details as I have already covered the same in 2 separate posts.

What do we expect for July 2015???
Common market mantra for Nifty is Sell in May & Go Away / In July Make the Nifty Fly
Sell in May was not a predominant theme this time and it is too early to hazard a guess for July

Review of Nifty / BankNifty Charts

As far as Nifty is concerned, there are 2 major resistances to be conquered

1] 8425 [apprx] The prev swing highs prior to June expiry
2] 8493 A major swing high from where the previous fast and furious fall started towards 7940

2 consecutive closes above 8493 [8525 for a bit of tolerance] and Nifty opens for a retest of 8800 levels [vindicating in July make the Nifty fly]

At the time of writing, Nifty is flirting with the 8425 mark but I can stick my neck out and confirm that both 8425 and 8493 are extremely difficult to negotiate and would need a lot of volume and momentum [especially 8493 as that has stuck out for almost 5 weeks now]

On the downside, 8225, 8125 and 8025 remains good supports from where bounce backs can be expected.

On BankNifty, the critical resistance comes at 18600. As of now there is a short term double top formation around the 18800 area. 2 consecutive closes above 18600 and breach of 18800 with volume and momentum opens Nifty for test of 19200-19400 area.

As I have kept saying again and again, it is not the Greece standalone issue that is sending shivers for hot money. It is the risk of contagion and negative precedence it sets for a negative chain reaction across bond markets that will result in a lot of liquidity contraction with investors' flight to safety.

As I mentioned in an article earlier, purely from a sovereign debt perspective, ECB's standalone cost of Grexit standalone is estimated at about 40 billion euros over the next 36 months. The real uncertainties come on the shock-waves after that.

First and foremost: A large scale currency devaluation should Greece go back to Drachmas and what happens to the depositors' money in the banks. What exchange rates will be used?
And then if these things spill over to other PIIGS countries, the impact is much larger in countries like Spain and Italy.

The humanitarian angle: With deposits curbed at 60 Euros per card and ATM machines without cash, basic food, medicines and fuel purchases are also in danger. Procedural justice for sovereign mismanagement is resulting in a humanitarian collateral damage.

Multiplier Effect: There is not much public domain data in Europe with regards to Credit Default Swaps. Even when the previous 2008-2009 crisis took place, it was the Credit Default Swaps market that accelerated the credit crunch.

Hopefully by 6th or 7th July, we will have clarity on the issue.

So let us stick to critical levels and other indicators to watch out 

For the Indian equities arena, I have already outlined the crucial resistance and support levels.
2 things that I will be watching very closely are USD-INR and 10-Year bond yields. As long as spot rates are below 64.25 for currency and below 8% for the G-Sec, the house is in order. If the currency starts trading above 64.25 and / or bond yields harden over 8%, the corrective phase will get prolonged. For the corrective side, the pattern target comes to around 7650-7700 zone

Which way it will go, time will tell.
However, for the longer term, there are a lot of individual stocks that are ripe for accumulation.

Hindalco, Tata Steel, IDFC, Nestle, Tata Global Beverages are all at attractive levels. They may fall further from current levels by another 20% to 30% but that is ok. The time horizon for these investments is around 3-4 years and expected gains are at 20% PA in the longer term.

In the second week of July, Jupiter, a major planet will move into the fiery sign of Leo. On a personal level, it will bring a lot of positive changes for some whilst challenges for some other. Across capital markets, this Jupiter transit will bring a medium term shift. Whether it is a change for positive or negative, time will tell. But some certainty and direction will come into force by the end of July 

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