EOD Analysis For 1st February 2012 and Outlook For 2nd February 2012

Muted start basis global cues and volumes pretty much unchanged from yesterday. A sudden spike up came in when Europe opened in the positive territory. Sectoral churns as usual for most of the day but bell weather stocks still making hay. BNF, Infra and related stocks witnessing remarkable recovery from the lows of the day.VIX hovering around 23 which is pretty much a respite for bulls.

Critical levels and outlook remain unchanged.

Today was the 2nd consecutive close above the 5150-5177-5196 band and hence one may expect more upside from here towards the 5280 region - hats off bulls for pulling this off [who have literally defied gravity in the last 4 weeks!]

4th milestone cleared in 4 weeks
A] 2 consecutive closes above 4840-4880 band
B] 2 consecutive closes above 4944-4994 band
C] 2 consecutive closes above 5032-5092 band
D] 2 consecutive closes above 5150-5177 band

Unless there are negative triggers, at a minimum upside can go to 5280 levels; momentum going in favor of bulls [volumes are coming in courtesy shorts] and the over-bought signals still remain stagnant. Gap-downs are getting plugged within the same day or next where as up-gaps are pending since 10th Jan '12.....

Only a close below 4880 can revive hopes of plugging the gap-ups
Panic to enter the system only with a close below 4690 [far away from where we are right now!]

EOD Anlaysis For 31st January 2012 and Outlook For 1st February 2012

A good start to the day but volumes were lower with OI in Nifty futures hovering around 24.5 odd million in the morning session and another 1.5 million added after Europe opened. Sectoral churns were happening as usual with banks, IT, Reliance leading the rise whilst LnT, Infra saw some short-covering in the last hour adding to the gains. Bell weather stock Tata Motors once again extending gains [hats off to some seniors on mmb and our group who were quite confident of this upside even when the counter was at sub-180 levels]
Another stock that has gained good traction in the recent past is Sesa Goa. The momentum exhibited by these 2 counters in the last 4 weeks is over-whelming. Yesterday's gap-down has already been plugged

Critical levels and outlook remain unchanged. To sustain the upside, more volumes are needed which again seems like have a chance to surface basis shorts entering the system! Thanks to one of our team members Abhay Dubeyji for pointing this out- a strange jinx seems to have entered on Tuesdays since the beginning of 2012; every Tuesday, Nifty maiya tends to hit a century to the upside [how far it will happen, GOD alone knows]

Today's close is also significant due to the monthly close and the verdict for 2012 seems to be very clear IMHO- Nifty will gain a lot of traction as we progress through 2012 and from an investment perspective, now all falls must be utilized to accumulate.

The only factor for which my opinion is different from some seniors / experts is that at a minimum, the recent lows need to be backtested to plug the gaps; however, 2 consecutive weekly closes over 5250 and we have to accept that sub-4550 was the bottom. My personal concern with the meteoric rise from 20th Dec lows are the volumes

Options Data Noise (Some air cleared today):
On the options data front, the 2 deeply ITM options mentioned yesterday 5000 Feb CE / 5300 Feb PE still displayed same traits as yesterday initially; the 5000 CE has an additional time value of about 60 points over intrinsic value whilst the 5300 PE had 25 points over intrinsic value until the last hour where it gained another 25 points of time value. Now it seems realistic on both sides compared to yesterday. Lot of demand / supply coming in for the 5300 PE in the last 30 minutes.

EOD Analysis for 30th January 2012 and Outlook For 31st January 2012

Negative start to the day aided by global cues and the Hanging Man candle spotted on EOD Friday was vindicated today. OI in Nifty futures was pretty much the same as on Friday i.e. 26.5 odd million; VIX did spook up to 23.5 odd levels but no panic for bulls as such - just an alert. Compared to the last 3 series, it is still a good sign IMHO because we used to see OI in Nifty futures well below 25 million when new series used to begin. 1 gap-up created on Friday has been plugged [and goes without saying that we can expect today's gap-down also to be plugged within the next 5 weeks or so]

BNF as usual led the falls and other index heavy weights like LnT (all gains of Friday reversed) and the IT pack also saw profit booking. As long as bulls manage to retain 5032-5092 levels, they have a good chance of testing the UTL of the main resistance line 6338-5944-5740 now at about 5280 odd levels* [*subject to 2 consecutive closes in the 5150-5177 zone or above]. Upto 4911-4880 on the downside will just be routine profit booking if such steep cuts do come in which I guess they will as we progress through this series.

However a close below 4880 can set in a fresh round of shorts but we will see when we get there; closing above 5150 was deemed a low probability event in some of my earlier posts but then we saw 2 consecutive closes above that!

Options Data Noise???: Surprisingly even the deeply ITM Feb 5300 Put did not move with with expected delta factor of 1 and even at the lows of the day, it was hardly commanding any additional time value [around 10 points only] over its intrinsic value! IMHO, we should observe price action of this security over the next couple of sessions because such weird behaviour in options price is rare at the beginning of the series. Moreover, deeply ITM Calls like Feb 5000 still carry significant time values over intrinstic values!!

Personal Inference: The big bets still are lying on the upside for a couple of sessions OR Call Writers are setting up the stage for bulls just as they did for bears in Jan series.

Time frame, thankfully went in our favor once again with high weightage for 30th Jan! Next 2 high weightage time periods are 6th Feb to 8th Feb and 3rd week of Feb with highest weightage revolving around 22nd Feb - direction for 6th-8th to be determined later but I am personally bearish for the 22nd Feb period.


Panic will enter the system only with a close below 4690 and should that happen, at a minimum we will retest the recent lows and worst case scenario make a new low [far away from where are right now so let us take each session as it comes]

EOD Analysis For 27th January 2012 and Outlook For 30th Jan 2012

First day of the series and not surprisng to see OI in Nifty futures drop to 26 odd million [it was hovering around 38 odd million in the last 2 sessions during expiry]. Yet another gap-up session! Banks led the fall in the morning session but good gains brought in by Reliance, IT pack and bell weather stocks continued their winning streak, thereby keeping the index relatively stable. VIX rising marginally but still well below 23 to keep bulls relaxed for now. Nevertheless, the Feb series has started on a firm note and this is the 2nd consecutive close above 5150 levels [4th milestone achieved by bulls in 4 weeks time!] This rally certainly has bewildered many including me but it is remarkable because the rise from extreme lows, with all negative news flow, bulls have defied the odds - broad market participation and rise with volumes considering a 1 month period - hats off to the bulls!

System is overbought and over-heated but still no signs of cooling down at all! Banknifty is showing some signs of cooling off but still the rise from 7800 levels is significant - there is a time bomb sitting there in the form of NPAs and loan restructuring and I am reasonably confident that this has not been discounted in the current rise.

The volumes and momentum along with the rise in stocks like Sesa Goa, Tata Steel, Tata Motors, LnT, Maruti etc have been phenomenal [Infra pack covered below]

On a fundamental level, the infrastructure sector related stocks are seeing a lot of buying especially counters like JP Associates, IDFC, IVRCL, IFCI, some of which are now challenging their 100/200 DMAs. For the longer term, this perhaps is a good sign with just one caveat - is it due to the tax saving investments due this time of the year which will reverse the gains ??? Nevertheless, with a 2 year horizon, I think stocks mentioned above have found their bottom and even in case of a round of panic selling, these will perhaps just retest the bottoms once again before marching up and I have not an iota of doubt that these counters will do well. Earlier, the valuations were a bit of a concern but now these seem good propositions to buy on every dip. IFCI in particular has a lot of value locked in with the potential NBFC license IMHO.


Critical levels and outlook remain unchanged. Monday is a high weightage day for price action and IMHO the direction will be set by Dow/FTSE/DAX weekly closes today.

As long as falls in Nifty remain restricted to 4911 levels, it will just be a healthy/routine correction/profit booking. First sign of weakness with a close in the 4880-4911 zone [ideally below 4880] and panic to enter the system only with a close below 4690!

I have shared some of my observations on Wave Personality / Amplitude from an EW perspective but will leave it to Raghuji to blend the EW outlook in his special signature style.


Other Updates

Dow: Phew - what a rise that was last session; upto 12600 was on expected lines but beyond that definitely has surprised a lot of people incl me. Likewise on SnP 500 and unless it posts 2 consecutive closes below 1300 now, one should be vary of a further rise here.

FTSE: Upto 5750 was definitely expected but now it has gone a shade ahead - outlook remains unchanged. First sign of weakness only with 2 consecutive closes below 5550 and eventual targets remain sub-4900 levels

DAX: The rise beyond 6400 was phenomenal and weakness only to set in with 2 consecutive closes below 5750. Eventual targets remain sub-5k levels.

Euro-Dollar: The pair is on its set path to 1.25 odd levels with eventual targets at 1.185. Relief rallies will keep coming from time to time and to the extent 1.325 is not breached on the upside for 2 consecutive sessions, no change to the outlook here.

Gold: In dollar terms, yes this rise was expected but how much further it will extend depends on other conditions like QE, Euro-contagion etc - unless the recent high of USD 1925 odd levels is not taken out, my outlook is negative with targets USD 1350-USD 1450 / ounce

Silver: Outlook same as that of gold with targets at sub USD 25 levels.

Some Blogs To Share

My dear pal Shriram Okha has started his own blog 'Random Words' with some basic mathematical / Classic TA techniques and the same has been added to my blog list.

Another blog I came across courtesy links shared by some of my FB friends that I really liked a lot

Chart Dreams: Link: http://firecharts.blogspot.com/ - it is an excellent treatise on EW and Fibbonacci Ratios / Mathematics

EOD Analysis For 25th January 2012 and Outlook For 27th January 2012

Expiry day and surprise surprise - OI in Nifty futures dropped to 34.8 odd million in the opening session but added another 3 million in the last 90 minutes with the choppy action!

Sectoral churns went well for index management. In fact BNF did not really participate much on the upside today. The stars turned out to be bell weather stocks from the Tata pack i.e. Tata Motors, Tata Steel and not to forget Reliance Infra, Sesa Goa; JP Associates extended its gains some modest support from Reliance and the IT pack.

Critical levels and outlook remain unchanged from yesterday.
Closing above 5150 was a low probable outcome but that has become REALITY todayi.e. more upside is possible from here!

Really got to hand it over to the bulls who got everything in their favor from the lows of the series
1] Rising volumes with price rises with stellar performances from broader markets
2] A decent correction in Rollar
3] All 3 milestones achieved despite a strong short-build up
   a] Close above 4840 and taking out 4880 with volume/momentum,
   b] 2 consecutive closes above 4944
   c] Closes in the 5032-5092 band [and not to forget the close above 5150 on expiry day!]

High weightage days for Feb series are 30th Jan, 6th-8th Feb and 16th Feb to 23rd Feb. For the first 2 patches of dates, direction to be determined as we move along but IMHO, 16th Feb to 23rd Feb has a bearish bias attached to it as 377 days from 11th Feb '11 comes to 22nd Feb. Looking at price action of Jan series, my personal opinion is that some sharp falls can be expected in this period i.e. 3rd week of February

First hint of weakness now only with a close in the 4880-4911 zone [ideally below 4880] until which the correction will just be a normal healthy correction/profit booking.

Panic will only set in with a close below 4690!

EOD Analysis for 24th January 2012 and Outlook For 25th January 2012

OI in Nifty futures surged to 36 odd million today with the dovish RBI stance [and surged another 1.6 million towards close] and BNF from the lows of the day gained almost 400 points at one stage. VIX well below 23 and that is respite for bulls. The stellar performance from LnT in the last one month is mind-blowing [almost 35% upside from the recent lows!]

Must put in a word of caution here that the euphoria in BNF can subside anytime and the longer it takes to correct, the sharper will be the correction; credit growth is still not very good and the impact of NPAs is only increasing with passage of time, especially with all the restructuring of loans that are due. IMHO, markets certainly have not discounted this factor yet.

Critical Levels and outlook remain unchanged from yesterday. One session away from expiry and bears definitely have been mauled by the bulls big time [considering the fact that the series started at almost 4700 odd levels on spot] After a high volume session tomorrow as well, one can expect a sudden drop of 20% to 25% volumes for a few sessions into Feb series.

As mentioned earlier, the longer it takes to correct, the sharper will be the subsequent correction. Unless we see significant correction in BNF and bell weather stocks, steep cuts on Nifty will have to wait.

IMHO, we are now on the verge of a turning point to the downside though initial signs of weakness only after a close below 4994

I use pictures very rarely, being the verbose motley fool that I am;

For a change some pictures:

Illustration1: Nifty Weekly Chart

Illustration2:
Zooming into Daily Charts To examine recent moves

I still maintain that closing above 5150 is a very low probable outcome for now. However, with the way shorts are being chopped, the market won't cease to surprise.

Panic will only enter the system with a close below 4690!

Illustration 3
Banknifty Daily Charts

This one definitely is going through a frennzzie phase and will be a major culprit once again for subsequent corrections

EOD Analysis For 23rd January 2012 and Outlook For 24th January 2012

Muted start to the session and volumes in Nifty futures remained pretty much the same as Friday. Banknifty was up for most of the morning session whilst RIL, CIL, Tata Steel etc saw profit booking/corrections. LnT staged a very smart bounceback from the lows of the day. BNF gave up all its gains at close but still significantly high

VIX still below 23 levels and that still keeps bulls pretty relaxed for now

No change to outlook and critical levels.

As long as bulls manage to stay in the 5032-5092 zone on closing basis, Nifty is open for a retest of 5125-5169-5177 on the upside [though closing above 5150 seems a low probability outcome to me as of now] Below 4994 with volume and momentum, we may see a test of 4911-4944 on the downside.

A strong round of correction and profit booking is due with 4 gaps on the downside to be filled. Looking at all 4 gaps from 4550 to be filled as we move closer to 22nd Feb '12. Unless we see a strong correction in Banknifty, the falls in Nifty may be limited.

Below 4785 with volume and momentum, we may see further falls but expect 4690-4728 zone to provide a strong bounceback in case of extreme falls. Panic to enter the system only with a close below 4690 and this will invite a retest of recent lows and perhaps a new low [but that is way far from where we are right now - so let us take each day as it comes and some price manipulations expected with 2 days remaining for expiry]

Cues From SGX Nifty
[During sessions where we have expiry or holidays, price action on Nifty tends to lag SGX Nifty by a few trading sessions; even when Nifty was struggling at 4840 odd levels, SGX Nifty had shown a high of 5034 and that was achieved 6 sessions later; in the last 5 trading sessions, SGX Nifty has shown a high of 5100+ and a low of 4780 so the range for next 8 to 10 trading sessions is pretty much defined IMHO barring expiry manipulations]

Other Updates (Only for Academic Interest):
There is a lot of mumbo-jumbo circulating in the media about 'cheap and easy carry trades with EUR'; all that I can say is it is a short-term fad that can easily reverse and it just takes 1 bad day in trade to create more damage than upside. For those academically inclined, I would encourage reading 2 cases [easily available online on investopedia and HBR series]

A] HKD-Yen Carry trades on Nikkei / Hang Seng in the early 1990s The crash on Nikkei and rise on HangSeng gave a double whammy to a lot of hedge funds!

B] LTCM - A Hedge Fund that a generated 300% return for over 2 years and then went bust blowing up everything [courtesy the collapse of the Russian Rouble]

It is very unfortunate that mankind tends to have limited memories and we keep seeing the same things happening again and again with every boom and bust cycle. [It does not matter whether it is a carry trade with HKD-Yen in the 1990s or Russian Rouble-USD or EUR-USD/EUR-Yen now - the symptoms and dangers associated with such trades are the same and can result in a lot of damage overnight when things explode - and it is even more easier to explode within minutes now as the trades are leveraged upto 400 times and it just takes a 5% correction on one side to potentially blow up billions worth of equity in minutes - most recently we had the case of a 2.1 Billion Dollar worth of debacle with EUR-CHF trade by a floor trader in UBS leading to ouster of the CEO!]