So the much awaited election month is here. A lot of people are anticipating fantastic election results and hence the huge demand for options. Elections May 2009 saw some big gap-ups post UPA-2 and the consensus view is that history will repeat itself. I personally don't know whether history will repeat itself but prima facie looking at the run-up as of now and option prices, whilst upsides are expected with a stable government outcome but such a massive runaway gap-up may not repeat itself.
I don't mean to say that markets won't cheer such an outcome but looking at the aggressive option price build-up, change in Volatility, Implied Volatility, the immediate outcome in the stock markets seem poised in favor of option writers and hence fireworks may not immediately follow post-results. I would be very vary to play this game via options. Cash Market buying or Long Futures + Long Puts as hedges could be better.
Coming back to the profit booking mode that Nifty has been in the last week of April, I can just say that these are healthy and needed for sustained bull runs. As long as prices stay above 6225-6350 band, it is a very healthy correction and routine profit-booking sessions. So far, 6650 zone has been tested twice and prices have bounced from there. Another time it is tested, it may not hold and slip further to 6550. However, as prices have broken out of a multi-week, multi-month consolidation and hence I won't recommend shorts even for trading. I would use all these falls to add to longs be it in the equities segment or futures segment with SL EOW < 6225. The minimum upside targets remain unchanged at 7200-7500 bands. Anything above this in 2014 will be a bonus.
The higher markets go without reasonable correction and consolidation, the steeper will be the ensuing correction. As of now its a bull party that seems very well poised to continue. So when will the bears come into the picture??? Only 2 possibilities
1] An unstable government / Third Front or a government with a short tenure with another elections within 12-15 months. FIIs will simply pull the plug out of India
2] Black Swan events like the dot-com bust, Lehman Brothers etc
These are events that one cannot really plan for and alertness in taking action is the only way to manage. So without any of these triggers, the bull trend is intact and short-term fluctuations should be just ignored as far as the blue chip stocks are concerned. As mentioned in April as well, most of the consumption theme patterns have played themselves out well. Similar is the case for IT as well. The sectors that will lead the rally now will be the capital goods / manufacturing related stocks, banking stocks [especially the PSU companies]
The best way to play these stocks will be Junior Bees, InfraBees etc
The charts for review
Nifty Daily
Nifty Weekly
BankNifty Daily
BankNifty Weekly
Other Updates
Gold and Silver may play out in divergent themes in the second half of this year. Gold in all likelihood is going to continue its uptrend as usual. However, now Im getting very wary of silver in the short to medium term. The prices in both dollar terms and rupee terms are not appreciating as swiftly as they should have. Moreover with silicon and nanotechnology, the industrial use for silver is decreasing. Given low prices in dollar / rupee terms for Gold and Silver, there is natural inclination to allocate higher amounts to gold rather than silver. Please not that this is a short to medium term view. The longer term trend for silver still continues to remain up. So if one can ignore the short-term fluctuations, any price below 44k all the way down to 35k is a good price to buy silver for a longer term target of 75k.
Gold is an open and shut case because the moment dollar price drops below 1250 dollars an ounce, there is significant drop in gold production and demand from emerging markets surge. So within 8 to 10 trading sessions, price simply starts picking up on the back of physical demand.
As far as crude is concerned, in the short term rupee appreciation may bring some relief in prices. However, that relief will be temporary. Longer term trend for Crude is UP and it is poised to cross the 3 digit mark in rupee terms within the next 18 months or so. On the Rupee-Dollar, front, a stable government may bring rupee dollar exchange rates towards 50 levels but that also will be a medium term relief factor.
The exchange rates are primarily dependent on the bond markets and bond yields. As long as we have near zero rates from the west and 6%+ yields on RBI bonds, the exchange rate is bound to depreciate in rupee terms. Compounding to India's woes are the high level of imports that need to be settled for in Dollars and Euros. However, these again are longer term trends and one needs to plan accordingly.
As and when day to day trading or investing ideas come up, I keep updating via Twitter that you can see on the top right side of this blog. Happy investing and trading. Just like many firsts, this is one of the most historic elections of India and let us see how things pan out. From an EW perspective, we are in a powerful 3rd wave on a monthly/yearly scale as well [about 18 months from Jan '14 to June '15] One should not be disheartened by corrections / falls in the shorter term. Greater the fall, greater the buying opportunity on index level.
I don't mean to say that markets won't cheer such an outcome but looking at the aggressive option price build-up, change in Volatility, Implied Volatility, the immediate outcome in the stock markets seem poised in favor of option writers and hence fireworks may not immediately follow post-results. I would be very vary to play this game via options. Cash Market buying or Long Futures + Long Puts as hedges could be better.
Coming back to the profit booking mode that Nifty has been in the last week of April, I can just say that these are healthy and needed for sustained bull runs. As long as prices stay above 6225-6350 band, it is a very healthy correction and routine profit-booking sessions. So far, 6650 zone has been tested twice and prices have bounced from there. Another time it is tested, it may not hold and slip further to 6550. However, as prices have broken out of a multi-week, multi-month consolidation and hence I won't recommend shorts even for trading. I would use all these falls to add to longs be it in the equities segment or futures segment with SL EOW < 6225. The minimum upside targets remain unchanged at 7200-7500 bands. Anything above this in 2014 will be a bonus.
The higher markets go without reasonable correction and consolidation, the steeper will be the ensuing correction. As of now its a bull party that seems very well poised to continue. So when will the bears come into the picture??? Only 2 possibilities
1] An unstable government / Third Front or a government with a short tenure with another elections within 12-15 months. FIIs will simply pull the plug out of India
2] Black Swan events like the dot-com bust, Lehman Brothers etc
These are events that one cannot really plan for and alertness in taking action is the only way to manage. So without any of these triggers, the bull trend is intact and short-term fluctuations should be just ignored as far as the blue chip stocks are concerned. As mentioned in April as well, most of the consumption theme patterns have played themselves out well. Similar is the case for IT as well. The sectors that will lead the rally now will be the capital goods / manufacturing related stocks, banking stocks [especially the PSU companies]
The best way to play these stocks will be Junior Bees, InfraBees etc
The charts for review
Nifty Daily
BankNifty Daily
Other Updates
Gold and Silver may play out in divergent themes in the second half of this year. Gold in all likelihood is going to continue its uptrend as usual. However, now Im getting very wary of silver in the short to medium term. The prices in both dollar terms and rupee terms are not appreciating as swiftly as they should have. Moreover with silicon and nanotechnology, the industrial use for silver is decreasing. Given low prices in dollar / rupee terms for Gold and Silver, there is natural inclination to allocate higher amounts to gold rather than silver. Please not that this is a short to medium term view. The longer term trend for silver still continues to remain up. So if one can ignore the short-term fluctuations, any price below 44k all the way down to 35k is a good price to buy silver for a longer term target of 75k.
Gold is an open and shut case because the moment dollar price drops below 1250 dollars an ounce, there is significant drop in gold production and demand from emerging markets surge. So within 8 to 10 trading sessions, price simply starts picking up on the back of physical demand.
As far as crude is concerned, in the short term rupee appreciation may bring some relief in prices. However, that relief will be temporary. Longer term trend for Crude is UP and it is poised to cross the 3 digit mark in rupee terms within the next 18 months or so. On the Rupee-Dollar, front, a stable government may bring rupee dollar exchange rates towards 50 levels but that also will be a medium term relief factor.
The exchange rates are primarily dependent on the bond markets and bond yields. As long as we have near zero rates from the west and 6%+ yields on RBI bonds, the exchange rate is bound to depreciate in rupee terms. Compounding to India's woes are the high level of imports that need to be settled for in Dollars and Euros. However, these again are longer term trends and one needs to plan accordingly.
As and when day to day trading or investing ideas come up, I keep updating via Twitter that you can see on the top right side of this blog. Happy investing and trading. Just like many firsts, this is one of the most historic elections of India and let us see how things pan out. From an EW perspective, we are in a powerful 3rd wave on a monthly/yearly scale as well [about 18 months from Jan '14 to June '15] One should not be disheartened by corrections / falls in the shorter term. Greater the fall, greater the buying opportunity on index level.
