EOD Analysis For 20th January 2012 and Outlook For 23rd January 2012

Extremely positive start for Nifty once again aided by positive global cues. 4 sessions away from expiry and this time, volumes have come in on expected lines [last month, high volumes showed up only a day prior to expiry]. OI in Nifty futures hovering around 33-34 million [indicating a lot of roll-overs by Longs and Shorts] Star performer of the day was our barometer Banknifty with Axis Bank continuing its winning streak big time. In fact, had it not been for Banknifty, Friday factor may have had its full force today! VIX did spike up a bit today but nothing to be worried about yet as it is below 23

Where do we go from here with 3 sessions pending in the series???

Critical levels remain unchanged and the 5032-5092 band will be a strong resistance zone unless there is a gap-up. Volumes as long as they stay at today's levels and shorts get chopped, we should not be surprised to see 5092 being taken out and in case that happens, Nifty opens for 5125-5169-5177 [probability of closing above these levels seems very low to me; ]

On the downside, 4800-4840 band may be able to withstand a round of selling pressure and even in case of excessive selling, 4690-4728 will provide a strong bounce-back IMHO. Now only a close below 4690 can usher in panic.

Gaps are pending to be filled and I estimate these to be filled by 22nd Feb '12.

Global Market Updates:

Dow: IMHO, the last leg of the upside is done and this counter is set to start its next leg of fall. However, initial signs of weakness only after a weekly close below 11800 and complete weakness to be confirmed after 2 consecutive closes below 11500

Let the spike in automotive segment not throw wool onto the eyes; it is the output falls in Thailand due to floods and lower production levels in Japan that is keeping factories at full capacity in US. It will come down with a thud within a year.

The fact that jobs are being cut left right and centre in the BFSI segment is enough proof of a weak economy. The same holds true for Europe as well.

FTSE: Again, the relief rally seems to be topping out [we had given targets of 5700-5750] but weakness to be confirmed only after 2 consecutive closes below 5550. Initial target remains 4900 and this will happen swiftly after a weekly close below 5300-5350 levels

DAX: Same as above; initial signs of weakness though only after 2 consecutive closes below 5750. Eventual target remains sub 5k levels

Euro-Dollar: These are relief rallies that can extend upto 1.3250 also; T1 remains 1.25 odd levels and eventual target is 1.1850 as a minimum IMHO

Euro Stoxx 50: This one definitely has surprised a lot of bears by taking out 2400 levels! Weakness only with a close below 2125 and then the falls will accelerate.

Gold: Target remains intact at T1 = USD 1450 and T2 = 1350 on Comex; however, any form of QE may invite a sharp spike in the price once but these should be used as opportunities to book profits IMHO

Silver: Target remains intact at sub-25 levels but any form of QE can invite a spike upto USD 34-USD 36 levels. Same outlook as with Gold.

Next update on Monday EOD. Enjoy your weekend.

EOD Analysis For 19th January 2012 and Outlook For 20th January 2012

Extremely positive open on the back of global cues but volumes still pretty much unchanged. Sectoral profit booking and longs seen. Bell weather stocks like Tata Motors, Tata Steel and my barometer Banknifty all gained well; likewise for index heavy weight Reliance as well. Only CNXIT is on the back-burner right now and it is not surprising [we have always maintained that this will fall with a lead time of about 3 months]

4 sessions to go for expiry and it remains to be seen how things pan out because volumes are very critical now; morning session saw OI in Nifty futures around 28 odd million in the morning but another 2.3 odd million added towards Europe open; so volumes are coming in and one can expect this to go on until expiry as well regardless of direction.

VIX well below 23 and it does seem too sugary sweet to believe. Critical levels remain unchanged from yesterday. 5032-5092 band will be a bit difficult to conquer [unless there is a gap-up or volumes do come in further with the rise] Unless Banknifty corrects significantly and other index heavy weights don't witness profit booking, shorts will be chopped. The longer it takes to correct and fill the pending gaps, the sharper will be the subsequent falls.


There are a lot of gaps pending and one can expect these gaps to be filled prior to end of Feb series in all likelihood [historical data from Aug '11 till date suggests that Nifty fills in all gaps in either direction within a maximum period of 5 weeks; gap-ups started in current series from 10th Jan '12]


Other Updates:
Too much noise around what to expect on Greece; my personal take is simple and straightforward on that; markets are very much aware that Greece is insolvent and can't repay its debt for the next 2 decades - period! This factor will take all markets down and only the severity will be a question

Scenario 1] Credit Default Swaps are triggered, it will be the next Lehman episode in the making as along with sovereign insolvency, it will make a lot of banks and fund houses insolvent as well!

Scenario 2] If it is a write-down on Net Present Value of holdings [already down by 50%], the impact may not be as severe as some perma-bears are thinking.

EOD Analysis for 18th January 2012 and Outlook for 19th January 2012

Pretty much a flat session for the morning session but volumes were very much the same as yesterday in Nifty futures. This should go on increasing IMHO regardless of which direction Nifty takes on now as we are just 5 sessions away from expiry of current series. ONGC, Reliance extended their gains which to a large extent kept Nifty just marginally negative despite steep cuts on Banknifty, CNXIT and profit booking on other counters in the morning session.

VIX below 24 still and that is respite for bulls and bad news for bears for now

Seemingly tough fight between bulls and bears in a tight range but IMHO, the scale is tilted marginally in favor of bulls now with a 2nd close above 4944 levels.
No change to ultra short-term outlook

To the extent 4800-4840 band is intact and trades above 4880 with volumes, bulls can take this tussle to the upside challenging 5032-5092 levels which if further conquered with volume and momentum, can challenge 5169-5177 levels also [I would personally assign a probability of 25% for this in the next 8 to 10 trading sessions]

First sign of weakness only below 4785 [with volume and momentum] and panic only with a close below 4690 [here the VIX levels will start soaring above 27-28 levels IMHO]

5 sessions prior to expiry and the game is interestingly poised; my expiry predictions flop down and hence I have given up on that long ago; I just take each session as it comes without worrying too much about expiry;


That bears will take command and retest the lows and perhaps make a new low- I am reasonably sure of that with my personal probability assignment @ 99%

The only thing to watch out for is whether we go down from here or from higher levels and with today's EOD, I am inclined to believe that we may go higher on Nifty first before collapsing.

Critical Dates - Basic Overview

Let us see how critical swing anniversary dates have played out so far

5th Nov '10 - Nifty made a high of 6338 and started correcting; 377 days later we saw similar price action

6th Jan '11 - Nifty made a high of 6181 and started correcting; 377 days later, an upswing came in i.e. the polarity of price action was opposite this time

11th Feb '11 Nifty made a low of 5177 and 377 days from there works out to 22nd Feb '12
If the polarity decides to be the same this time, then we can expect steep corrections in the 16th Feb to 25th Feb '12 period.

If the polarity decides to be of opposite nature, then we can expect Nifty to take steep cuts in the first 2 weeks of Feb '12 and then make its upward march.

Bull market cannot start before Spring Equinox of 21st March '12 IMHO [Im inclined to believe that it will start around 21st June '12 with Summer Solastice]

EOD Analysis for 17th January 2012 and Outlook for 18th January 2012

High weightage day again on expected lines but direction certainly foxing bears [incl me]! On the back of positive cues from Asia, Nifty opened with a gap-up and sustained itself above 4944 levels for a major portion of the day. Whilst the opening session saw an OI in Nifty futures at 26 odd million, by the Europe open session, it was clocking 28.5 odd million all the way till the end- exactly what the bulls needed for the day. Moreover, sectoral stocks also extended their gains with just CNXIT being laclustre [Auto, FMCG, Capital Goods, Pharma, Real Estate, Metals all extended their gains and not to forget my favorite barometer, Banknifty though this one is showing signs of being a bit tired] That being said, the market breadth at least on index counters is very positive at the moment so the dependence on Banknifty may be limited for 2-3 trading sessions. VIX below 23 and it seems too sweet to be true [maybe my personal bias]

Just as the close above 4840 was crucial earlier [had potential to yield upto 4984 and we saw a high of 4971 today on spot] the close above 4944 is again very significant for bulls and perhaps, more pain for bears.
4944 is a very critical angular resistance and hence, some more upside maybe left in Nifty [if bulls get lucky, they may see another 150 odd points from here challenging the 5032-5092 resistance bands!]

Are markets out of the woods - an emphatic NO! It is the news of potential QE in different formats from China, US and possibly Europe that is keeping markets in the green [read hope]. One round of profit booking and correction is due; the longer markets take to correct and backtest the lows, the sharper will be the subsequent correction.

For downside, weakness only after a close below 4690 that will bring in a lot of panic and fear. There are now 3 gap-ups pending to be filled and that started from 10th Jan '11. These gaps are bound to be filled in a time frame of 3 to 5 weeks so bulls can't take it easy.

For Next 2-3 trading sessions

Critical Support Levels: 4800-4840-4880-4911 [even in case of steep corrections from here, the 4690-4728 band IMHO will provide good support for a bounce back]

Critical Resistances: 4994-5032-5092

EOD Analysis for 16th January 2012 and Outlook for 17th January 2012

Volumes showed some increase today with OI in Nifty futures hovering around 26 million [Jan+Feb+Mar series - from today until expiry, I will be taking all 3 into account]. Banknifty saw some correction but in the last hour had a good short-covering session considering the low of the day, CNXIT saw some short-covering and bell weather stocks like Tata Motors, Tata Steel extended their gains. Oil and Gas continued to remain weak - to summarize, the index management seems to be doing well to manage Nifty index levels and ranges tight. VIX opened pretty low but picked up steam within 1 hour of open - still as long as it is below the 25-27 band, bulls can keep calm. Alert mode above 25 and panic mode above 27 [fear above 29!]

Critical levels and outlook remain unchanged; tomorrow is a high weightage day and whilst my personal bias is downside, critical levels, volume and momentum need to be respected.

For Upside:
To the extent the 4800-4840 band remains intact and volumes support, Nifty still has potential to retest 4911-4944-4994 levels. [at least 10% more volumes than current levels]

For Downside:
First sign of weakness will be going below 4785 with volume and momentum but IMHO the 4690-4720 band has potential to support the fall once at least. However, closing below 4690 will tilt the scale completely in favor of bears once again and we need to brace for some steep cuts [and a close below 4690 can keep VIX well above 27-28 levels]

An EW / Fibonacci Perspective For Longer Term:
Normally, I leave the EW outlook to Raghuji only but this weekend, our family had some nice private discussions / healthy debates on the longer term outlook and just would like to present my personal view on the same. [Credits for this discussion to Wave Rider, Raghuji, Shriram bhai, Super Falconji; the points below are what I put forth to the team]

Nifty entered a corrective mode from Jan '08 taking steep cuts from 6357 to 2252 in 8 months which was a Py-A in a 3 wave format; Py-B commenced from the lows of 2252 and hit 6338 in Nov '10 and the structure seems more of a DZZ to me. Now we are in Py-C mode from 6338 going down in DZZ format with a minimum target of 4460 [can go to 3800 or all the way back to sub 3k levels but we should not try to look so far at this point of time IMHO] Upto 3800, the entire structure can still fit in as an A-B-C with current Py-C as a DZZ; below 3800, we need to look for a Flat.

3800 levels mark a 61.8% retracement of the 2252-6338 upside leg

From a Fibonacci time perspective, the entire A-B-C structure can be estimated to take a time of 34 to 55 months. 48 months are done now in Jan '12 and we can expect a final bottoming out process between March '12 and June '12. After that, IMHO, Nifty will likely resume its bullish trend with a 21-34 month target of making new highs by Diwali 2014 [and this possibility is open regardless of what happens on Dow, FTSE etc] This also fits in with the fact that markets tend to start going up after monsoon session, provided other factors help.

Unfortunately, the confirmation that the bull market has indeed returned and the market has bottomed out will only be generated when Nifty takes out the Upper Trendline of the Downward sloping channel that Raghuji has marked in his special updates blog [You can see the post and picture by following this Link]:. Until then, we have to consider upsides as a bear market rally. On a sector specific level, the positive news will be confirmed by the leaders in the Banking and Infrastructure pack IMHO. At some point of time, price action will simply defy bad news and fundamentally it seems right. With develeraging becoming a real threat and economic contraction a reality in G-8 countries, the growth areas will continue to be BRIC countries once again [how much each portion contributes is a different discussion]

Just wanted to relay the big picture as well and hence this long post. From tomorrow, will continue with the shorter term outlook and levels.

EOD Analysis for 13th January 2012 and Outlook for 16th January 2012

Positive start to the day on the back of positive global cues and pretty good volumes as well. OI in Nifty futures hovering around 25 million in the morning session with VIX cooling below 24 levels; Banks, Tata Motors, Coal India, Tisco extending gains and BNF spot also showed a lot of steam. [One thing to note is that after adding significant premium to BNF futures yesterday, today towards Europe open BNF futures started trading at a discount and the forward contracts had more discounts than current month contract, quite unusual on this counter......caution advised] another 1 million added in Nifty futures OI with the rise later

Although Nifty managed to conquer 4880 today, the volumes and momentum did not support much unfortunately; Critical levels and outlook remain unchanged

For Upside: To the extent 4800-4840 band is active and 4880 crossed over with volume and momentum, Nifty can make an attempt towards 4911-4944-4994

For Downside:  Volume and momentum below 4795 can take Nifty down but IMHO, the 4690-4728 band will support at least once. A close below 4690 will bring in a lot of panic and then we need to brace for some steep cuts.


Other Updates and Food For Thought:

With the government asking for an extra pound of flesh in terms of dividends from PSU companies, one should not read too much into the upside of PSUs today in the index majors IMHO; Fundamental Analysis keeps asserting 'Dividend is the sign of a healthy company' - in principle, one can agree but with current head-winds and macro-economic situations, the same cannot be said about PSUs of India. Operating costs are no way rationalized yet and the fixed cost burden is very high.

Steel is sectorally weak still and there is a lot of pain still remaining in the sector; Precious metals are going through corrective rallies and steep falls await them IMHO. Yesterday's collapse on Comex for essential food staples [corrections in Wheat, Soybeans, Corn were significant] also is something we should not read into too much IMHO for 2 reasons

1] The charts had already indicated weakness and profit booking
2] There is a larger degree political game on-going here due to elections and the fact that a lot of producers are trying to create a supply shortage solution by increasing storage facilities and not buckling to bargain deals of the harvest season.

It would be very naive to assume that such measures will cool down inflation fears whether in India or abroad- we are still at about 20% YoY inflation on CPI basis. [Doctored numbers will probably help RBI maintain status quo]

Dow: To the extent 12200-12250 band holds out, we can expect a flick to 12550 odd levels before resuming the downturn. First sign of weakness with a close below 11800 and 2 consecutive closes below 11500 will confirm that a larger correction to retest the 10400 levels has begun; eventual targets are sub-10k levels

FTSE: Still some room to retest the 5700-5750 levels before heading lower. Initial weakness to be confirmed with 2 consecutive closes below 5550 and full weakness to be confirmed with a weekly close below 5300-5350 levels [this will confirm retest of 4900 levels at a minimum]

DAX: Still some room to retest the 6300-6400 levels before heading lower. Initial weakness with 2 consecutive closes below 5750

EuroStoxx50: Weakness only below 2125

Euro-Dollar: The current upsides are relief rallies and the pair is on its path to 1.25 odd levels

Hope you had a good trading week; wishing all readers greetings of the season and enjoy your weekend. Looking forward to another week of opportunities with high weightage on 17th Jan '12 [personal bias is downside but need to be alert on how things pan out. Option traders may be better off trading Feb options from Monday]

EOD Analysis for 11th January 2012 and Outlook for 12th January 2012

What a disparate show on benchmark indices - CNXIT taking steep cuts on expected lines whilst BNF showing remarkable resilience [and vindicating the hypothesis that about 3 months lag time can be expected on CNXIT to mirror Nifty's corrective mode]. VIX hovering around 25 giving respite to bulls

[However, one can see the intraday charts from 6th Jan to 12th Jan for which we had warned in advance of significant price fluctuations and trading opportunities for alert players]

Nifty futures OI was pretty stable at 25 mill and lots of stock specific action seen; Axis Bank continued to extend gains whilst today, SBI put up a brave front for most of the day. [ICICI Bank and HDFC Bank also were in positive territory] Metals pack still doing well and auto majors managing to hover around the surface.

To the extent market is able to hold the 4800-4840 band and volumes support, 4911-4944-4994 cannot be ruled out with 1 major hurdle at the 4880 zone; this needs to be conquered with volume and momentum. IMHO, all good news for banks has been fully discounted [dovish RBI stance, cash infusion in SBI] but investments by PSU banks to revive the economy is perhaps a negative for the short term and this is not reflected well in the Banking segment. At the expense of repeating myself, no major falls can come on Nifty unless Banknifty shows signs of weakness and goes down

[With all the headwinds doing the rounds all over and such steep falls on the KBW Banking Index, job cuts, I am personally not able to comprehend the strength displayed on BNF - but need to respect what is reflected on the ticker; my personal stance remains the same - Short via futures with hedges of course and drop the losing leg but with a longer term horizon, keep accumulating BankBees when BNF spot is in sub-8k levels as these units will deliver stellar gains with a 2-3 year horizon]

For tomorrow, I personally expect the 4690-4728 band to hold out in case of negative triggers and Friday factor coming out. [I know this may sound confusing so let me put it in perspective below]

For Upside: If 4800-4840 zone holds out and volumes support, 4880 is a critical resistance which if conquered with volume and momentum, we can expect Nifty to try for 4911-4944-4994

For Downside: First sign of weakness below 4795 with volume and momentum but IMHO 4690-4728 zone may once again provide some respite. Full weakness to be confirmed only after a close below 4690 and then we need to brace for a big slide!

2 downside gaps pending to be filled and that should happen within the next 3 weeks or so.

Erratta: I mentioned Friday being Makar Sankranti day by mistake yesterday but that is not the case; my apologies for the same.