Wednesday, October 7, 2015

Outlook For October 2015

Well September again was full of volatility where in we saw a retest of lows made in August and a subsequent pullback. There was one major gap between 8225 and 8025 that has almost been filled.

Initially, prices may be pushed back from 8225 levels towards at least 8025 and maybe just maybe towards 7800. We will have to observe how prices pan out. Lets analyse the time-frames, current status and trend changing levels as on 6th October '15

Daily: Bullish [Trend Changer = 8025 apprx]
Weekly: Bearsh [Trend Changer = 8025 apprx]
Monthly: Bearish [Trend Changer = 8325 apprx]

October is a month with a lot of holidays in between and a 5 week long expiry series. Historical analysis points to the fact that 5 month series on Nifty tend to have a larger range [almost 800 points] and the same can be expected to play out this series as well [just as was the case in August]
Direction is immaterial for now; the broad range is 7800-8225 and some consolidation is on the cards. A break of either of these 2 levels for 2 consecutive sessions will yield another 150-200 points in same direction.

For Diwali 2015 [around 11th Nov '15], we are looking at a target of 8625 [barring Black Swan Events] So in case we see steep falls in October series, they can be used to buy on delivery basis for a short-term momentum trade.

For the longer term, the commodities related stocks continue to remain best bets for the longer term. Crude has been consolidating around the 45 dollars a band and the worst case scenario can get the prices to 35 but it will barely stay there for 2-3 sessions and revert back to 45 levels. Prices of Steel, Aluminium, Zinc, Nickel etc are at multi-year lows and there is not much to lose in terms of value.
In 3-5 years time, the base metals pack will again be staring at the highs made in the 2010-2014 period [though not lifetime highs that are near impossible to gain]

The best bets in the base metals space continue to be Hindalco, Tata Steel, Vedanta, Cairn
IMHO, longer term targets are as follows
Hindalco = 150+
Tata Steel = 450+
Cairn and Vedanta will at least double from current levels

Why is the commodity space looking so attractive when all are looking at an abyss
1] When mass psychology is looking downwards, chances of the move in the opposite direction is far more likely!

2] From an Indian perspective, the commodity prices in dollars and rupee-dollar exchange rate determine final prices. Dollar index spiked from 75 to 98 from 2010 till date. Even a 50% retracement will ensure that Dollar Index moves towards 85-86 levels [closer to US Presidential elections] When the dollar index corrects downwards, dollar based pricing of commodities go up. Rupee Dollar has made its base at 60 levels now. So these factors put together will ensure that the recovery of commodity prices in rupee terms will be much faster over the next couple of years.

All said and done, India is an active consumption based economy keeping demand higher and hence inflating prices.

3] Like all securities, when steep rallies or falls take place, over a period of time, 50% retracement does take place technically

4] Based on practical experiences in the 2000-2003 period and 2008-2010 period, a lot of producers of commodities have already stopped production and the more prices fall, more and more producers will drop production. So market forces will levitate prices upwards

Another space that is slowly getting attractive is the FMCG space, especially names like ITC, HUL. They have had meteoric rallies and are now correcting both in terms of price and time. Over the next couple of years, we can see solid base building and perhaps doubling of stock prices from current levels over the next 5 years.

Have a profitable trading / investing month ahead. As and when some individual opportunities crop up, I will update the same.

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