Global Market Updates / Special Coverage For Indian Bourses - 24th September 2011 - Part2

So we saw that there are a lot of headwinds as far as the developed nations are concerned. Now let us look at what to anticipate on Nifty, Indian stocks and economy moving forward. The rise in dollar index has had such a pressure on the Rupee that the falling prices of commodities do not seem to have any impact on the end price we pay in Indian Rupees. Unfortunately, that will continue to be the case for some more time. As far as gold is concerned, it was in a complex Diagonal Triangle with support at 1450-1500 area and upside at 1925 area making higher lows and lower highs. Currently, it has broken out of this by breaking down below 1725 region but the 1450-1500 zone will continue to act as support IMHO and gold may make one more attempt to take out the 1925 levels and may even spook upto 2k levels in the counter-trend rally but it probably is not worth playing for the swing in gold for the upside momentum. Rather one should see now whether the 1450-1500 zone holds and if we get 3 monthly ticks with High Price below 1450, then it is pretty sure that the upside is done with and the next buy levels would be around 1200 levels only.

Nifty broke the critical support level of 4911-4944 zone. A short-covering rally is pending that may take Nifty to 4944-5032 region but difficult to go beyond that at this point of time IMHO. There may be a lot of shorts entering the system by 4925 levels itself and it continues to be a Sell on Rise market as far as trading is concerned. Now the argument that the high Rollar will boost exports and IT is an absolutely rubbish hypothesis. It holds good only to the extent that all other factors remain unchanged. The major challenge is that there is a fundamental demand slowdown for export related activities (especially in IT/ITES); moreover, with elections around the corner and domestic problems of their own, Europe and North America will start pulling the plug on a lot of projects and will try to boost local jobs wherever possible without too much deviation in the cost-benefit aspects. Moreover, things have changed drastically in emerging markets as well and a lot of unique competitive advantages that the Indian IT companies had a few years ago is not there any more. For instance, as far as costs are concerned, the average per headcount cost out of India, Poland, Chile or Philipinnes is pretty much the same now. Europeans are increasingly showing preference to keep activities in Poland, Czech Republic,  Hungary etc that offer the same time-zone and a far more in-depth understanding of local issues as compared to Indians. US companies are increasingly shifting preferences to countries like Chile that fall in proximity to the time zone and offer much lower costs compared to India.

Last but not the least, the level of imports that we have is tremendous and a weak rupee is severely going to dampen the growth factors for the same. Hence things are not at all hunky dory except for the fact that on a per capita GDP measure, we are almost at the bottom and there is not too much downside remaining. Just as in 2008, so to0 even now, by the time the panic sell is done with [Ideally within the 3800-4200 zone on Nifty in 4 to 6 months time], smart money will recognize that we are still growing by about 6% solely on domestic consumption. Hence, Nifty will be on Buy radar aggressively. Another barometer that is indicating a lot of negative impacts discounted on Nifty is VIX. 35 plus levels and then levels of 38 on India VIX were seen in 2008 when we fell royally from 6357 to 2252 [and closed that day at 2525 - the dreaded 27th/28th Oct 2008] . This time we fell from 5200 levels almost to 4720, staged a counter-trend rally to 5169 and closed at 4940 zone. VIX is already above 35 and when we come to 3800-4200 zones, the VIX will again hit 38 levels and by such times, a lot of the falls will be bought into. This is my personal opinion as far as Nifty is concerned.

Cash as usual remains the king and one can start becoming stock specific and as I always say 'Index' Bees units once Nifty starts going below 4600. Whilst the pending new high did not come in 2011, we should be able to see it by 2014 once we are also done with our elections and this panic bottom buying will provide a very good hedge against inflation as it has the potential to double or triple the investments in a 3 year time frame. Banks as usual will lead from front once the bottom is established followed by automotive, FMCG, Pharmaceuticals.

Invest in companies that have constant revenue flows rather than investing in companies with longer gestation periods. For all my visitors in the IT/ITES section, it is still not too late to diversify skill-sets and keep alternate options ready. The problem this time no as big as 1 Lehman Brothers, it is many similar small clones of Lehman which when added, gives the sum of parts much more than what we saw during the fall of Lehman Brothers. The severance packages that come through maybe good but we have a huge number of job losses coming up in this category.

Global Market Updates / Special Coverage For Indian Bourses - 24th September 2011

So the Fall Equinox on 22nd September did play out the role that it had to play and got the bourses to melt down more than 4% in a week's time. Gold and Silver also saw a massive sell-off due to unwinding of Long positions and redemption pressures on ETFs. Even crude oil saw a massive sell-off with a rising dollar index. So is it going to be a slippery slope all the way with no relief at all? Probably not. Let us look at each geographical section, the challenges and the potential way forward

US / Dow: Dow made 2 valiant attempts to take out the 11450 zone and even posted a counter-trend high of 11500 once but the crucial requirement of 2 consecutive closes above 11450 was not fulfilled. The global market concerns put in a lot of selling pressure and Dow is now hovering around precariously at the 10500 levels. The 10250-10500 zone represents a very crucial support level and it may continue to take some support in this area before taking the next leg down. [This is in line with the Critical Support level of 1100-1125 for SnP 500 where one may expect a bounce back towards 1150-1175 before heading down to the next stop]

The current rise in dollar index is absolutely on expected lines and some of our readers may remember that we called for a massive rally in the Dollar Index all the way upto 81 levels. A lot of people were confused as to how does this become even a remote possibility when the SnP Ratings were downgraded for US Debt. Partly the answer lies in the fact that the US Dollar is still the reserve currency and partly because of the fact that a lot of leveraged fund houses have their positions in dollar terms and when margin calls are triggered, the dollar obligations on the bourses help the dollar rise significantly. The eventual target for Dow is 6k to 8k levels but it cannot be a free fall unless the orderly defaults on Europe are triggered just as the Lehman Brothers and the sub-prime crisis poked its head up out of no where.

The other reason why even fund houses within the US had to end up with a sell-off was due to the fact that they were sitting with hardly 3.5% odd levels of Cash vis a vis Assets Under Management. The utter disrepect for cash took a severe toll [and will continue to do so as it is human nature not to learn from past mistakes! more so the US bankers who still continue to live in the illusion of the past that at any point of time, the Fed will come and print a lot of dollar bills to bail out the banking system. The way the US bankers operate is nothing short of what North Korea does for the aid. A communist government sitting on a pile of nukes keeps pressing for aid in a begging bowl most of which does not go for the real purpose of malnutrition and poverty alleviation. Yet, the world has no choice but to keep doling out the aid due to the plight of the people suffering there.

This is the modus operandi of elite bankers wearing blazers and talking a lot of fancy mumbo jumbo. The hollow threat each time is that credit growth and the savings of a majority of hard working savers' money [which these suckers have already blown out] will be in jeopardy. By and large with an election due every 4 years, the governments and leaders with the vision of winning or continuing the streak at Washington DC's White House / Capital Hill area do as it is easy to do it at the cost of mango people's money and also win elections!]

This will go on forever until the majority of people in US actually study in proper universities and focus on wealth creation by producing real goods and tangible services. Unless this happens, the Dow will keep oscillating between 6k and 14k in a 3 to 5 year cycle. All cries for a big rally in Dow to 15k and 20k will be hollow ones and the other aspect of Dow sinking to 3k is also rubbish. Even if we take Dow's negative streak in 1970s and 1980s, the 1k mark then, adjusted for inflation works out to 5816 (Taking a CAGR Inflation Rate of 4.5% for US for 40 Years) - so we should be able to see more or less the post-Lehman Brothers levels or maybe slightly lower.

Never go by what bankers like Goldman Sachs or for that matter any advisory keeps on harping about - there is enough evidence in public domain that GS called for Oil over USD 250 / Barrel in the roaring 2006-2007 period, doctored deals by airlines to hedge their risks by locking in a futures price of USD 135 for aviation fuel and when the crash of 2008 took place, called for a low of 30 dollars a barrel! The losses that airlines incurred were far greater post Lehman Brothers not because of low load factors but due to this suddenly odd position they were in to pay more than the market price [and the treasury managers woke up so late that it was not even worth buying Puts by then to arrest some of the losses caused by the locked in rates!]That is how most advisories work - when Gold started appreciating from 1400 levels, the first call was for 1625 [and that is logical] and then a panic raising prices to 1800 off levels. Around this time, there was sudden increase for gold and we heard cries for 2000, and eventual destination of 5000! 2 days of sell-off and now people are talking about 1000 on gold etc - bottom-line: in a herd mentality, only extreme price targets are given without any justification.

So as far as the US is concerned, safe to assume that any level around 5k and 7k on Dow is a wonderful opportunity to start buying as there will be counter-trend rallies on a cycle degree as well. With presidential elections in 2014, regardless of who comes into power, there will be enough doctoring of statistics and sentiment barometers to bring Dow back again to 12k plus levels.

Europe:
FTSE saw a sharp sell-off but in all likelihood, will take some support in the 4900 zone and stage a counter-trend bounce in the short term. Eventual target lies at around 2500 levels [I am very skeptical of the calls for 1850 on FTSE at this point of time for reasons same as the ones given for Dow] With elections towards the end of 2013/early 2014, seems very much plausible that FTSE will bounceback smartly from well above the 2k zone.

For UK, one good aspect is that they are producing goods and services that fuel the economy. One leg of hyperinflation that will take out a lot of small and mid-sized retailers but eventually will start bouncing back with consolidation. The falling Sterling will help the exports of engineering goods; real estate prices are correcting and will continue to fall further in line with what is happening in the US. We should be able to see a sharp fall by mid-2012 and then a smart pull-back by early 2013 in the UK real estate market.

Now, the world is beginning to realize the strategic significance of UK supporting the unity of Eurozone but staying out of the Euro. This has come as a blessing in disguise as it allowed the Sterling to collapse well, for a brief period spook up but maintain the downward spiral for competitive exports. It also saved UK the burden of doling out funds for Eurozone bailouts as they are hard pressed to monetize their own debts.

Outlook for CAC40 and DAX remains unchanged; a 50% to 62% correction from this year's highs; CAC is almost there and would probably be one of the first ones to hit the 2k levels from where a bounce may be anticipated. DAX should be able to stage a pullback from the 3500-3800 zone and by 2014, come towards the 6500-7k levels again.

SMI (actually the leading indicator now for European stocks) broke down the crucial support level of 5300 [it had a pending target of 5600 via a counter-trend rally which I am still marking as pending until we get 3 consecutive closes below 5k levels] but I expect SMI and DAX to stage very smart pullbacks in a 2 year time frame with or without the drama of Euro.

PIIGS - Will continue to sink into an abyss regardless of what happens in terms of bailouts. Italy being a major Mediterranean  gateway with a lot of intra-Europe trade as well as foreign trade is in a position to step up relatively quickly. Spain will also have severe problems but may be able to work its way out of trouble at least temporarily which is an uncanny exception amongst the PIIGS countries. Portugal has displayed remarkable solidarity and is showing signs of people realizing the importance of productivity for longer periods of time. Now the shops are open all 7 days a week in most places, the minimum wages are rationalized and one can see Portugal's factories gain a lot of orders. Whilst the Italian people have already starting following suit and Spaniards, taking some more time to join this bus of 'responsible' and 'sensible' part of the workforce, with a brief period of negative extremeness, should be able to see a difference.

Unfortunately, I am not able to say the same about Greece and Ireland with the same confidence with my limited knowledge and exposure of conditions in here. As of now, not able to see any definitive action from both people and governments here to bring the old drive of doing something concrete and creating wealth and opportunities for people. The attitude still seems to be that of living under the 'glory of past' and 'hope' that some other counterpart will bail them out of trouble.

So that is how I see the US / European markets for now. In the next part of the weekend series, we will take the coverage for India.

EOD Analysis for 23rd September 2011 and Outlook for 26th September 2011

Nifty opened on a very soft note courtesy weak global cues and the day was extremely volatile and choppy as indicated yesterday. Nifty Futures OI clocked more than 30 million in both the rise and fall today whilst VIX spooked up beyond 35 levels. Of course those who were alert and followed the charts posted on the weavologic section and levels indicated could have reaped fantastic rewards. So moving forward, a technical pullback towards 4925-4950 levels once again is on the cards. The maximum upside is almost certainly capped at 5225 levels now and it just remains to be seen how much of a pullback can Nifty stage.

The critical levels on upside are - 4911 - 4940-4980-5032. Only a close above 5032 with volume and momentum can provide further upside and as of now, one should not expect more than this. The only silver lining is that there is some similarity in the current price action with what we saw in April/May/June series. If that similarity indeed replicates itself, then the pull-back may be strong. The larger trend is DOWN

On the downside, the critical levels are 4820 - 4780 - 4720 - 4693

The market has moved to a completely Sell on Rise scenario. We are headed to 4450-4500 levels in about 8 weeks time IMHO. One should not rush to buy Puts though as the VIX will cool down slightly next week and will be available at lower premiums. Longs should act as hedges for the Shorts only and the risk reward ratio is in favor of Bears completely.

Other updates will be made by Raghuji on the counts aspect and Harshalji/Pyare RCGji on Weavologic. Global Market Updates will be provided over the weekend. Hope all of you made good profits with the forecasts given here. We certainly did and I must confess that the downside will start was anticipated by the team; but so much so soon was not expected by me either. I had always insisted that the threat of retesting 4900 and then 4800 levels was very much on the cards. [My personal outlook was that 4911-4944 levels would hold the fort for this week and further downside would come towards expiry. It was this outlook that prompted me to go long yesterday towards 4900 but I got stopped out whilst the hedges via Oct shorts were intact. Finally managed to reap rewards on both sides today courtesy guidance from Raghuji and Harshalji]

Disclaimer: This is not an attempt to monetize the blog in any form as alleged by some of our detractors here. All contributors to this blog with the exception of wwji are full time employees (self-employed or otherwise) with other professional interests and following the markets is a passion. We put our efforts in running through our analysis and put forth our views for the benefit of fellow boarders and visitors to this blog. Our motto is simple and crystal clear


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Have a nice weekend and stay tuned to the various aspects of the markets that we keep sharing from time to time. From today, our dear Sunnyji will be providing us with a lot of humor with his jokes and quotable quotes. From time to time, he will also share his ideas on Fundamental Analysis of counters / sectors.

Tomorrow, we have a discourse by lovely QOji. I hope to meet some of you online. 

Time/Price Alerts Latest - Nifty

Friends - I had put this chart in the beginning of the series itself and clearly mentioned that the pink and yellow squared dates are very very crucial for Nifty. I had categorically also stated the importance of 22nd September as it falls into a crucial zone in line with the low of 4720 made on 26th Aug '11; on top of that, it fell on the Fall Equinox. Tomorrow, we will be exactly 21 trading sessions away [A Fibo number] from the low of 26th Aug '11. Monday, we will be 55 trading sessions away from the swing high of July [again a fibo number; you may refer to the earlier charts I had uploaded as a tribute to Shri Mallesh Goudji]

Please Click Here To Keep The Latest Updated Chart With You

On a smaller scale / fractals there are some delays in manifestation of certain price actions but on a bigger scale they are not. Please ensure that you pay attention to hedging positions in futures and buying options of the right strike at the right price as the premium burn rates are very quick. I hope by now at least some of you are getting the importance of keeping track of time as well along with price action and volume action.

Looking for a short-covering session tomorrow but it may just get delayed. As per this square attached, the hint it is giving is that tomorrow's session and Monday's will in all probability be opposite to each other; i.e. if the losing streak comes tomorrow, then the short covering will come only on Monday or vice versa. However, in either case, tomorrow is not the time to shop for Puts or Calls as we have a weekend in between. The burn rate is going to be very high for the options as VIX will calm down by Tuesday or Wednesday IMHO.

Please do not go for tukkas in the 'hope' that the positions will end in profits. More will be anyways there on Weavologic and EW Counts. 

EOD Analysis for 22nd September 2011 and Outlook for 23rd September 2011

A furious gap-down to open the session and no signs of relief at all since open today. Vix spooked up to almost 35 and Banknifty, Automotive and other interest rate sensitives like IDFC, IFCI all took steep cuts. Banknifty gave up all the gains of the last couple of sessions. Safe to assume that any further upside will be capped at 5225 levels max. The normal trend of OI in Nifty futures increasing with the falls resumed and the OI was consistently around the 30 million mark during the day. There seems to be a lot of margin calls being triggered all over the bourses as global indices also took steep cuts, yet there was a fall in price of Gold, Crude, Silver, Platinum etc [partially can be explained by the rise in Dollar Index]

A technical pull-back of 80-100 points due to short-covering may be seen and we may end the week within 4911-4944 levels as the floor for now. The pull-back will only be technical in nature [read short-covering] and as mentioned earlier, the threat of retesting 4800 levels is very real. Most probably, Nifty may take support in the 4800-4944 zone a couple of times; a break down of this zone will immediately bring the next support zone to 4693-4720 levels. Time to keep the shopping bag ready for some units of index to be bought as it is near certain from a market perspective that the next major destination for Nifty is 4350-4450 where there will be a lot of buying opportunities. Here one can deploy about 15% of investment capital with a 3 year horizon.

As far as trading is concerned, one should wait for the markets to show some signs of pull-back; and then short from the highs. Now the sell levels are 5170-5125-5092-5032 [and the resistances as well]
I wouldn't recommend a buy [and this has nothing to do with my personal position getting stopped out today]
The furious fall cannot go on relentlessly [just as the rally couldn't go through relentlessly] and there will be pauses in between. The VIX is indicating excessive fear and hence I do expect some pullback to take place. Upside for Banknifty is now capped at 9750-9800 levels and one can use this level to go short via a 3 months forward contract for a target of 8800 minimum [should come through latest by 20th November - IMHO; gained confidence on this basis some homework done on time analysis and would strictly encourage taking the  appropriate hedges]

EOD Analysis for 21st September 2011 and Outlook for 22nd September 2011

Nifty opened on a muted note yet again after a good performance yesterday. Banknifty continued to extend its gains by another 100 points and breach the 9900 levels in the morning. The OI in Nifty futures actually dropped further compared to yesterday and was reflecting 28 million or so both in the morning and mid-session. it seems like nobody wants to short so soon [as reflected in the premium on Nifty futures] but nobody wanted to take fresh long positions as well. VIX has been calmer at 26-27 levels this week so far.

Banknifty is just about 75-100 points away from completing the technical pullback and if the volume and momentum goes in favor of Banks tomorrow, then we may see Banknifty go all the way to 10100 also before heading south. For Nifty, the critical levels continue to be 5150-5177-5196-5225 [Max upside IMHO]

If the OI keeps dropping like it did today, then the upside cannot sustain for long. Banknifty and RIL played a major role in the pull-back from 4720; they will play a major role in the fall as well and I still maintain that the threat of retesting 4800 in September is very real. On the other hand a close in the 5177-5225 zone [matched with volume] can deliver another 144 points on the upside for Nifty.

Critical levels remain unchanged and keeping hedges on positions is very critical. Don't rush for shorts unless Banknifty decisively closes below 9750 and then 9600 [modified for 1st tranche and 2nd tranche from the last 2 days' recommendation.] Keep looking for Raghuji's blog for the wave counts and Harshalji's blog for some stock specific trade ideas.

On my shorting radar are Tata Motors and TCS - looking for TCS Oct 1100 PE at a price in the 15-18 region with Stop Loss at 12 and T1 = 25 and T2 = 35 [I never modify my order beyond 1 rupee just to get an Order Fill and earn money for my broker. If it comes through well and good otherwise it is not worth the trade. Hope this helps some of you to take your positions on other instruments also accordingly.]

EOD Analysis for 20th September 2011 and Outlook for 21st September 2011

Nifty opened on a mild note but immediately started showing strength within minutes of opening. The OI in Nifty futures were pretty much on the same lines as yesterday but most of the belted stocks yesterday saw a lot of short covering. Banknifty provided the much needed pullback towards 9800 levels but now it is showing some signs of topping out. The way volumes came in the last moment and significant moves in IT, Banks and some of the interest rate sensitives, Nifty may try for 5177-5196 tomorrow but the upside seems to be capped at 5225 as of now. The volumes need to increase by at least 10% and we need to see OI of at least 33 to 34 million in Nifty futures to see further upside. A close in the 5177-5225 region tomorrow may open Nifty to fill up the gap upto 5348 but then a cross-over of 5225-5250 should then bring in another couple of million OI to take this further. If this indeed comes through, then Banknifty may complete the full technical pull-back to 10,000-10,100 levels before they all head south.

Now weakness can only be confirmed with a close below 5092 on Nifty and close below 9600 on Banknifty [for the first set of shorts] Some of the top tier stocks have now risen more than 12% on EOD basis but one should not go blindly ahead with shorts in such counters. The markets are still not out of the woods. This entire pull-back is a part of a technical pullback and the threat of retesting 4800 is very real and very much on the cards. Raghuji will provide the updated counts for the same and Harshalji will provide the Support/Resistance levels on both Nifty and some stock specific examples. As usual, use your own discretion prior to taking uni-directional positions.

Hope you are enjoying profits and cutting losses with the help of our seniors' contributions.

EOD Analysis for 19th September 2011 and Outlook for 20th September 2011

Nifty opened on a muted note today and there was a significant drop in OI of Nifty futures for a major part of the day. Banknifty gave up the critical level of 9700 and actually breached 9600 [but at the close of the ticker, it quoted 9580 which is a good sign]. The uncertainties revolving around Europe are actually keeping a question mark for our indices. There seems to  be no major direction coming through but in stock specific actions, one could see a pretty good belting on counters like Tata Steel, Infosys, Banks etc. Despite such a range bound session, VIX actually spooked up slightly and went to 30 levels today before closing at 29.6

Dow's close today also may determine a certain degree of trends today and so will reactions on SMI, FTSE and DAX. All have a counter-trend bounce pending and if that come through, Nifty may finish off the pending target of 5150 or so before heading back. Critical levels remain unchanged

For Upside: 5092-5125-5150-5177-5196-5225 [A close above 5225 can propel Nifty to fill up the DOWN gap all the way to 5348 - probability is about 1% {my guesstimate}]

For Downside: 5032-4980-4940-4911 [Last hope where we should be able to see bounce backs at least for this week]

Weakness will be confirmed with Banknifty closing below 9500 and Nifty closing below 4880 and this will open Nifty for a retest of 4800-4720 levels but such low targets may not come through this week IMHO. Taking hedged positions is very critical and one should now avoid going for September options as the burn rate of premiums is very high. It is prudent to buy OTM Put/Call options [not exceeding 30% of trading margins] of October series and adhering to strict stop losses and trailing the winning legs]