Outlook For November 2013

So Nifty has defied gravity and fundamentals. October series started with the outlook as Daily = Bullish, Weekly = Bullish and Monthly = Bearish. A monthly close below 5803 would have kept the monthly trend as bearish.

For November series the values are as follows

Daily = Bullish and only EOD below 6125 can change that

Weekly = Bullish and only EOW below 5944 can change that

Monthly = Bullish and only EOM below 5850 can change that

Where do we go from here? Let us review the charts first

Nifty EOD

Nifty EOW

BankNifty EOD

BankNifty EOW

Current Nifty price levels are no way close to a secular bull market; in the previous instances when Nifty came to 6200-6300 levels, BankNifty used to be 12500+ levels; Capital Goods used to be at levels much higher than current levels. This time around its the IT pack and defensive pack leading from the front. So do I get aggressive with shorts - no way. During the recovery from 5118, I was with SL at 5740 and those were triggered long time ago. The price on the ticker is supreme and the same goes for DJIA, DAX etc. Just a few selected stocks are propelling the index higher and unless there is a proper reversal and as long as money printing by central banks continues, markets will edge higher whether we like it or not.

Coming back to Nifty, it is no doubt over-heated but should the prices take out 6357 [with 2 consecutive closes above 6280], Nifty may defy all sceptics like me as well and hit 6500-6600 levels. On the other hand, 6339-6357 levels are tested and the downward trajectory begins, it may be deja vu 2010-2011 again.

I won't hazard a guess at this stage and as mentioned earlier as well, I would prefer to switch gears depending on price action at the ticker. The levels to turn bearish have been given above on different time frames. [Daily 6125, Weekly 5944 and Monthly 5850]

The PCR on stocks are not showing excesses on the Put side for now; Implied Volatility has been dropping consistently for 6 weeks and hence a lot of premiums are being sucked out of both Calls and Puts. Regardless of where Nifty goes in November, IVs are expected to shoot higher and option prices rationalized by mid-November.

For the elections outcome in 2014 for India, there is a school of thought that the market is trying to price in the new government. I don't think that is the case. Right now, the only thing in the price is continuous QE from Fed, BoE, ECB and BoJ. It is very difficult to price in election outcomes for a market like India where the game ain't over till the coalations are stitched and somebody assumes power. When that will actually happen in India in 2014, we may expect a significant gap-up or gap-down regardless of where Nifty spot is at that point of time. Post elections, we may expect Rollar to appreciate significantly and go to sub-48.25 levels.

Other market updates
US indices are moving up courtesy QE. Just some small corrections post FOMC meeting are routine profit booking sessions. 15k+ is where it stands even after that. Only rising yields on Treasuries can reverse the situation. [and it is overdue for a correction]

Similar for DAX and FTSE. The Black Swan event of new German parliament has still not come through. There are serious backdoor negotiations taking place between Ms Merkel's CDU party and the SPD. Im still expecting a major suprise in Europe in the near future most likely from Germany or from Finland. But more on that when it actually happens.

These bull markets have been steady for almost 5.5 years now post-Lehman Brothers and have weathered the debt crisis of Europe thanks to rampant money printing. Once the bull market attains maturity, the growth and returns start flattening out.

Precious Metals: Some sideways movement can go through but IMHO the bottoms have been found. The dips must be bought into and most likely in about 18 months from now, we may see old highs being tested once again.

Crude will hover around the 70 - 100 dollars a barrel mark with most of the time towards the higher end of the range. For now, it is Diwali time and enjoy the upsides till they last.

So wishing all a very Happy Diwali and Prosperous New Year. As I keep saying always, views apart, follow the trend and prices on the ticker and you will be fine. 

Vijay Dashami / Dushera - Mixed Bag of Emotions in 2013

So its the festive season of the year. We know as to why we call this day Vijay Dashami - its the day when Ram won over Ravan i.e. the victory of good over evil. Different parts of India have their own way of celebrations like Durga Puja by the Bengalis, Garba- Dandiya by Gujaratis, Navraatra by North Indians and worship of Saraswati by the South Indians. Many of today's kids only look forward to these days as days of 'Celebrations' by Cadburys and a Dressing Up / Down cum Dancing festivals!

Today, on the Dushera day of 2013, I'm having mixed feelings. On one side, hapy about the festivities, catching up with near and dear ones but on the other hand, sad about the super-cyclone Phailin affecting coastal Anshra and Odisha. We are barely 2 months away from the massive tragedy at Uttarakhand and now this. Fortunately, this time, we had enough warning in advance to be able to evacuate a large section of the potential areas but devastation will follow through nevertheless.

I had yesterday tweeted about how nature unfurls its fury in its own way. India, the land of reservations - can anybody in the Indian government or bureaucracy now have a word with Phailin? 52% reservation for SC/ST/OBC and minorties so please ensure that these people are not affected? Can Maoists fight back Phailin for their rights?

Nature has always been ruthless when it decides to unfurl its fury just as it is impartial whilst gifting us its natural resources. I sincerely hope that the damage from Phailin is less severe than the tragedy of Uttarakhand. If Vijay Dashami is victory of Good over Evil, then the verdict is very clear. We Indians have become rakshasas like Ravan ever hungry to exploit gifts of nature and monetize them. We end up fighting with each other and push things to the limit in pursuit of money, power and prestige. So from time to time, nature has to take some action and make us humble and realize how cunning and stupid we have become.

As much as I hope that both the government and people realize their mistakes, Im not that optimistic. Our governments and bureaucracy will take this as another grand opportunity to siphon of millions [perhaps billions] of tax payers' money meant for relief for the affected people. At the same time, the Telangana and Seemandhra issue will get more vociferous and a full scale political drama will unfurl.

We, the people can only do 3 things; first and foremost, realize that we are human beings much before we categorize ourselves as Hindus, Muslims and then into Kannadigas and Teluguites, Brahmins, Kshatriyas etc. Second, we the people need to objectively evaluate whether our constituency leaders are simply doing things to gain political mileage or are genuinely concerned about our well being and vote accordingly. Most important, we need to cultivate 'empathy' [not sympathy or apathy] for the affected people. Sympathy means we end up demeaning the affected people and try to unburden ourselves by merely donating cash and supplies. Apathy means we simply don't care as long as we are not affected [that is what is the attitude most contemporary Indians have] In 2013, we will have witnessed natural calamities affecting almost 20% of geographical terrain of India and the huge challenge of rebuilding lives [which can take at least 5 years]

First and foremost, our affected brethren need food, clothing and shelter. Our armed forces are doing their best within the limited resources they have. I hope corporates and people move forward to lending resources to ensure basic well-being. There will be a lot of logistical support needed for the same and we should take up a cue from our ASEAN leaders [both government and corporates] who ensured full support when the tsunami struck in Dec 2004.

So Happy Dushera to all of us lucky to have been saved from nature's wrath for now. Let us hope to convert ourselves into living in harmony with nature and weeding out the Ravans who are taking us for a royal ride at our own expense. 

Importance of Evaluating Option Prices and Some Hyped Stocks

Well INFY results are around the corner and as usual a lot of traders are jostling up to build option straddles as for the last 10 quarters in a row, INFY results day has been eventful with a 10% Gap-Up / Gap-Down on open and then a follow-up with another 8% to 10% in the same direction for the subsequent 2 weeks.

Most traders want a quick-gun murugan trade with 100 points on the options straddle on open [and I have myself garnered that for 8 quarters in a row now ;)] However, What has intrigued me the most is the blind lapping up of these options by retail traders without going through the intricacies. Under normal circumstances, such things are fine but a lot of retail traders miss out on one critical point that is IV - Implied Volatility of the option. With retail traders queuing up like this, the Implied Volatility of Options shoots up big time and for the last 2 quarters, we have seen Implied Volatility of INFY options go as high as 80% to 90% a day prior to the results

What does this mean? With Implied Volatility shooting above 80%, one needs about 12% move in any single direction to BREAK-EVEN on the options spread cost. Only the move beyond 12% can yield some profits thereby making it a less meaningful trade. I suspect that the same thing is going to happen today by the end of the trading session and hence retail traders are advised to step aside on this trade. The best way to play the INFY result is to buy the options straddle well before the Implied Volatility shoots above 55% OR wait for the result play to take place and after option prices rationalize and then take a position accordingly.

For if one falls prey to buying the options with such high Implied Volatility, then you are only making the brokers and options writers richer. (I already have 2 lots of OTM INFY options straddles bought when the Implied Volatility was at 45% and if I manage to make 100 points on the spread when the IV goes high today, I will liquidate 1 lot today itself without waiting for the result!)

Other updates are related to some hyped up stocks and hyped up IPOs coming up

Just Dial: The stock is following the script of Educomp. The only saving grace is that retail traders are protected of getting their cost for 100 shares when the price goes on a tailspin provided that happens within 12 months of collapse [Educomp took 3 years to collapse 95% so expect the same time frame]

Jubilant Food: The stock is trading at over 65 times PE and this is not at all acceptable. Stocks like HUL, PnG, ITC trade at about 35 times PE and Asian Paints trades at about 42 times PE (Very high and over-valued actually) When the bubble will burst on Jubilant Food will burst I don't know but it will burst for sure. Indians consume far lower a share of pizza than other foods. Moreover, as the pizza space expands, you will have strong competition from Pizza Hut, Papa Jones, Smokin Joes etc so the market space will be crowded.

Jubilant Food at 30-35 times PE is still ok but definitely not at current levels.

MTEducare: Another Aptech / NIIT in the making and expect the stock to crash about 90% from CMP in 3 years time. PE is ok at about 24 times but a realistic valuation even in the recession proof education sector, the market space is crowded and anything beyond 8 or 10 times PE is over-valued.

Upcoming IPOs in the next 12 months
Aakaash - The training academy for JEE/NEET; expect an over-hyped IPO and price follow up but will meet with the same fate as that of NIIT/Aptech/MTEducare

Flipkart: Good e-tailing model and whilst it may soon cross revenues of USD 1 billion, profits in the e-tailing segment are less than 4% of turnover and they come with high expenses. Moreover, with Amazon Kindle and Google Playbooks crowding the e-commerce space with tablets and smartphones, the margins pressure on Flipkart will be high [Remember Subhiksha???]

The media will keep hyping up these stocks just as it did for Shree Renuka Sugars, Optocircuits, Delta Corp, Educomp, Gitanjali Gems, PC Jewellers etc and then at some point of time [after 80% crash] say that these are dead stocks and one should not look at them!

As retail investors, one should avoid these hyped counters as they 'seem' lucrative in the short term but in the long run, ruin investors. Whilst returns might be average market returns, one should stick to the indices and some time tested stocks and always invest in tranches.

A few days from now, we will either see a repeat of the crash of stocks OR a break-out [2 consecutive closes above 6280 on Nifty spot] So just wait for the crash or the breakout and then enter.

The Futility of State Creation in India - Political Stunt At Best

I reckon most of us Indians have decided to mentally age backwards as time progresses forward. If we look around the globe, most governments are doing their best to make border controls minimal to facilitate easy movement of people and more importantly easy transmission of goods and services. Minimal barriers reduce taxation and administration burdens and make businesses, governance more effective and in turn results in well-being of people.

These were some of the basic tenets that the newly independent India also decided to implement in the nation. Just free from over 15 decades of foreign rule and knowing extremely well how the West was so easily able to use Divide and Rule policies with so many regional borders and kingdom, the mindset was absolutely correct. Of course the implementation was not extremely effective because the basis to divide the states was decided on the basis of linguistic differences.

We must understand the point that for the 7th largest nation by area and one of the most populated countries, it is always a matter of taking a few tough choices. By continuously creating more and more states, our politicians are simply creating more and more tensions and increasing costs to the common man. First, there was division to create Chattisgarh, Uttarakhand, Jharkhand and UP. Now politicians are playing the Telangana and Seemandhra card.

If things go through then Gorkhaland, Vidarbha, Khalistan will be the next issues and one cannot help question the government what exactly are you trying to achieve? More states means more and more administrative burdens to be created - first and foremost. Right from municipalities to police to taxmen etc. Then comes drawing up the borders and disagreements related to that. [We have so many times seen the issue of Belgaum, Nippani etc being taken up; ask anybody be it Marathi speaking or Kannada speaking person they will say they did not really care. If anything, they rued the fact that so much damage to property was done and productivity went for a toss] In due course of time, we will perhaps have a demand in Karnataka for separate North and South Karnataka. In Tamil Nadu, there might be a demand to divide the state on the basis of coastal belt and Brahmin belts.

Then suddenly, the erstwhile zamindaars and royal families will realize that they can have their provinces again. it is simply an endless vicious circle. On the one hand we hate it when Moody's and SnPs and Fitch downgrades our country's debt outlook [There is enough empirical evidence to suggest that interest rates beyond 6% on sovereign debt are never sustainable!] We are already reeling from a severe fiscal deficit, Current Account Deficit and double digit CPI inflation.

Look at most government offices / PSUs; the 'Salaries and Pensions' are way beyond 55% of Fixed Expenses in most segments [even in the corporate world with high salary allocations and perquisites, above 45% is deemed unsustainable] With 7th Pay commission and beyond, we are not far away from PSU Salaries and Pensions comprising over 65% of Fixed Expenses! The common man pays for this through high taxes, more instances of graft and double digit inflation.

With more and more state border issues coming up, there will be more contributions to be made for administrative staff. More corruption and exponentially higher instances of graft. The governments are yet to implement a uniform VAT/GST regime and completely do away with CENVAT and Local Levies. The due date for 'Implementation IN FULL' was in FY10. We are in FY14 and no where close to a resolution. I really doubt whether this resolution can get through before FY16. Now with more borders in place, one can comfortably add some more chunks of 2% each time a state border is crossed.

Then there will be teething problems and state level debt has to be issued so that the newly formed state can manage to get some limbs in place. Already existing states have given up on Food Security Bill and confirmed that they want the Central Government to foot the bill. States like West Bengal have been asking for re-organization of debt and these new state creations will further drag the budgets.

To summarize, there are neither economic gains nor administrative conveniences coming out of new state creations. We have already set wrong precedents and things will only get worse as more borders are drawn out. This is a political stunt for votes and the common man will suffer tremendously. Our leaders have to answer some tough questions one the same and I sincerely hope that the voters will force the leaders to change that.

Outlook For October 2013

So, some excitement did come through after 22nd September, Fall Equinox. The German election result as of now seems a non-event. I have made one update and when I discuss Global Markets, will cover them more later in this post.

Coming to Nifty and BankNifty, let us first review the charts

Critical Levels as follows

As long as Weekly prices are above 5740, bulls can spring a surprise.
The most important level to watch out for is 5803 [+/- 15 points] on EOD 30th September. Holding 5803, the bearish possibility on Nifty gets delayed further. To call a 'Bull Market Breakout', 2 consecutive closes above 6280 are needed.

As I keep saying every month, so far we have never had a 'secular bull market' in India with Rollar above 48.25. Also Nifty so far has a jinx that when it opens in January above 6000 levels, it tanks to lows in the Oct-Dec period of that year (2008, 2011). Whenever we have had Nifty options in steps of 50, it has done badly for that year (2008).

The overall bearish conditions are satisfied but as my shorts in Sep got stopped out at 5740, I would not encourage fresh shorting till 5740 is breached on downside (Once bitten, twice shy). Many a time, people think that Not Bearish = Bullish and Not Bullish = Bearish as far as my outlook is concerned. I don't know about others but as far as Im concerned, my outlook goes Bullish - Neutral - Bearish - Neutral - Bullish. The 2nd part one has to bear in mind is the timeframe. As all seniors in the market will advocate, the higher timeframe view has more prominence than the lower timeframe view. The way prices are poised right now, this is my outlook

Daily Timeframe: Bullish till EOD > 5810 [This is to decide on taking a position for the next day]

Weekly Timeframe: Bullish till EOW > 5740 [This is decide a positional trade with 8-10 day horizon and reviewed every Friday]

Monthly Timeframe: Bearish till EOM < 5803 [This is to decide a positional trade with 4 weeks to 6 weeks horizon and reviewed on the last trading day of each calendar month, not expiry!]

To summarize, I could be bearish on daily basis but bullish on weekly basis and super-bearish on monthly basis. And not just me, any person with reasonable analytical skills will say the same. And also the fact that we have to be nimble footed and adhere to our SLs should the trade go against us and wait for the next signal to come. ('Itching' to take a position is trading suicide; discipline and patience is the key)

The levels are clear - so let us wait for Nifty to give the signal on 30th Sep '13. The preferred Bearish Count is still alive and I acknowledged missing out one crucial part in the EW analysis. The previous fall to 5118 was a 3 wave fall and hence a deep retracement was highly plausible. As long as prices are below 6225, the preferred bearish count is alive. Above 6225, that count goes out of the window for sure. The preferred alt 1 is already negated.

So there are only 2 plausible counts remaining

Bearish: 1 leg of fall pending on Nifty [1000+ points odd from CMP]
Alert Signal for INVALIDATION: Prices going above 6225
COMPLETE INVALIDATION: 2 consecutive closes above 6280

Bullish: Correction done at 5118 and new bull market has started
Alert Signal for INVALIDATION: Prices going below 5408
COMPLETE INVALIDATION: 2 consecutive closes below 5280

As I have also been mentioning regardless of where Nifty goes this year, next year is expected to be super-bullish after elections. So falls in 2013 must be used for accumulation. Preferred picks are NiftyBees, BankBees from the index based units; LT, SBIN, ITC, Tata Steel from the core index counters [Levels have already been given in previous posts] The index linked units ensure natural diversification of portfolio.
(Disclosure: Barring ITC and Tata Steel, I have long positions myself in other counters)

As of now Im Long Equities - Nil FnO. Long/Short FnO positions to be created after break-out / break-down signals emerge and will be updated on Twitter @NiftyParadox (Top left side of the blog)

Why things look super-bullish for India in 2014

Post-election results, most often than not have resulted in euphoria as the new government tries to scale down barriers for businesses and boost the economy. On a social mood phenomenon, India is at the cusp of an economic revolution just like the US was in 1980 [the roaring 80s as they called it]

During that time, the bond markets opened up big time, equities were soaring, the Dow made record highs. From a social mood perspective, the Billboard Chart Boards came up, more people started enjoying jazz, operas etc and the media space boomed. Fashion took new contours and there was a remarkable wave of freshness, cookery shows came up etc etc etc. Now just take a step back and see what is happening in India. Masterchef has gained importance, food is being looked upon as a lucrative business option, the colors in media be it films or television are all picking steam. Music has so many avenues and we have our own versions of Indian Idol, Sa Re Ga Ma etc etc etc. India's Best Dramebaaz, Dance India etc have gained significant momentum. Alternative cinemas are being embraced upon, people are becoming more fashion conscious and willing to experiment. People have become more open as far as relationships are concerned.

Social media has exploded and politicians are getting good stick for their foot in mouth diseases and customers are very punishing towards bad service be it from public sector or private sector. In Mumbai, open up the Mumbai Mirror and there are so many plays that are being patronized. 10 years ago, even a renowned theatre like Prithvi had to struggle to ensure adequate audience for plays. Only Gujarati plays, that too from a select audience used to get adequate patrons. Now, patronizing plays, music concerts is no big deal. More and more people are embracing them and these social indicators are very powerful signals. This India is changing for the better in many ways [and for the worse in many ways]

So the way I personally look at it, what US, UK witnessed in the roaring 80s, India will start witnessing post-election 2014. Also note the emphasis on 1980; [2014 = 1980 + 34; 34 is a Fibonacci Number] With so many different forms of analyses leading towards 2014, Im super-bullish as far as 2014 is concerned, post-elections of course. The downside of that is hyper-inflation and don't read too much into what Raghuram Rajan is doing now. He is carefully preparing his ground for Desi QE post-elections 2014.

Global Markets:

US: Don't read too much into the fiscal deficit debate in the senate. The US knows only one thing that is QE. They will continue to spend, continue to raise the debt ceiling and continue QE for as long as possible and as high a quantum as possible - period. They are now waiting to see the next Euro policy. Should the Euro-bailout move out, forget QE tapering, they will increase QE. Same is the case with the debt ceiling. If the debt ceiling is raised, then forget QE tapering, more QE will follow!
Republicans are fighting Democrats but remember which party created the Housing Mortgage Credit Crisis?
George Bush Jr + Allan Greenspan

The 2nd term of a US President has almost always been a disaster.

Germany: Merkel's key ally for Euro-bailouts has been ousted. The SPD whilst not anti-bailouts, is not pro-bailouts either. They want benefits of Euro bailouts to benefit common German people. This is a real problem in Germany because although the DAX is roaring, Germany's pro-Euro policy has helped German businesses and politicians. The common man is still struggling. Don't read too much into the fact that Merkel is coming back to power and she says that her Euro policy will continue as usual. With the new coalation partner and more resistance from Finland, Germany will pull the plug sooner than later on Euro-bailouts. The political landscape in Germany has changed drastically. We will see the results of the same in the next 6 weeks or so. The 3rd term for a German Chancellor has always been a disaster.

UK: Everybody is worried about the housing market bubble as jobs have not picked up. This entirely is the result of BoE 'Funding For Lending' QE policy. They have elections lined up in end 2014 or early 2015. So the bubble will continue but stocks will be under pressure as we run up close to the elections. (And remember that these are not new housing starts but erstwhile distressed properties that are being acquired)

Gold / Silver: They seem to have found their bottoms in dollar terms and will eventually turn up generating about 10% returns per annum

Crude: One fall towards USD 65-70 per barrel pending but prices will hover around the USD 100 per barrel mark with so much of QE happening all over.

Just a last note on Nifty; just as it happened in 2009, it will ignore bad news from the West and continue to soar higher. Expecting bumper new highs by Diwali 2014 on Sensex, Nifty, Gold, Silver et al

Yours Sincerely...........................Short-Term Bearish Long-Term Bullish Indian Analyst

Market Updates Post-German Elections / Opportunities for Nifty Traders

So as of the latest count, Angie Merkel and her party won the clear majority as of last count last night. The downside is that the current coalition has gone for a toss and a new one has to come into play. It will be a good 8 weeks before the final government and manifestos are in place. First of all, let us look at some of the basics

European political history suggests that only few leaders so far in major economies have got a 3rd term in office over the last few decades. Margaret Thatcher from the UK, Konrad Adenauer and Helmut Kohl from Germany have had the honors. History suggests that the last terms for all these leaders have been chequered. [And same has been the case for US Presidents in their 2nd terms]

The Euro has shot up marginally post the event and was one of the largest gainers after US Fed announced the holding back of tapering for the time being. 

Markets are so far celebrating the 3rd term of Merkel in anticipation that her aim of keeping the Euro intact will continue. What a vast majority of people have not factored is that fact that although Merkel has been talking about saving the currency, her underlying aim is to save Germany. By helping out PIIGS, Merkel has ensured near-zero borrowing costs for Germany and the DAX has been roaring because Merkel has ensured that a large part of the bail-out money is funneled back into the German economy. This is hardly surprising because Germany is highly dependent on exports be it international or intra-Europe.

What a lot of people are lot factoring in is the fragile condition of European economy as a whole. We know where the PIIGS stand. UK, barring the housing bubble and a few tech start-ups has not been able to revive the job market. It is instead busy creating the next sub-prime housing bubble [and the process has just started. Will take at least 3 more years for this bubble to burst]
The Danish economy has gone for a tailspin with average debt levels at over 350% of an individual's networth. The housing market is deep under-water and the government has had to overhaul the mortgage system to an 'interest-only' mechanism until further signs of improvising [another indirect QE and ensuring that people are under debt]

To summarize the situation in Europe, the risk that an immediate threat of some form of Euro-zone exit [either by Germany or by booting out some member] is averted for now. Bulls will be happy with that. Turbulence will continue for another 10-12 weeks. IMHO, there are some major surprises from Europe still pending and in all likelihood will still end up coming from Germany or Finland over the next few weeks!

On the other hand, the annual drama about fiscal debt and the debt ceiling started again in the US. Obamacare is being pushed back and the Republicans are trying hard to scuttle the Democrats' path of QE forever. Even that is an anti-incumbency sham because the Republicans also engaged in similar tactics. The turbulence on a day to day scale may seem funny but the bottom-line is that US is credit-addicted so no change expected from there.

How does all this pan out for India? With high dependence on FII inflows, Nifty tends to react almost everyday with either a boom phase or an absolute gloom face. The next 3 days of price action can almost entirely be ignored due to expiry week. However, I must caution the bears about Nifty closing above 6225 and more importantly above 6280. These are 2 very crucial levels and hence I have been reiterating that one should not jump to shorts till a firm close below 5740 is in place. Whilst on the upside if those 2 crucial levels are taken out, bulls will be on more rampage.

To recap on my earlier outlook I had given 3 levels on various time frames

EOD > 5445 is bullish and only a close below 5348 can signal reversal. This was the beginning of September and was taken out with conviction. Now that level has come down to 5944 on the daily time frame [Right now daily bias is bullish]

EOW < 5740 is bearish and a close above that will turn weekly signal to bullish. This has happened in the last 2 weeks and on a weekly time frame, this level stays intact. As long is Nifty is above 5740 on the weekly time frame, it is advantage bulls - period

EOM < 5803 is bearish and a close above that will turn monthly signal to bullish. This is the crucial level we have to look at when we evaluate closing price of 30th September 2013. The higher time frames have greater weightage and they tend to assert themselves unless the contrary price and volume action is strong.

On the EW front, my preferred count was looking at upside capped at abut 5944 levels and that went for a toss. I consulted a couple of experts on EW as to where my analysis went wrong and I got the answer from an expert master of EW in a precise concise manner. When the fall is a 3 wave fall, the subsequent rise is very steep. My mistake was that I was expecting an exact replica of Nov '10 to Dec '11 fall. Hence I expected a lower top on every rally. With this 'bias' I missed out on the crucial alternation rule of 3 wave fall-5 wave rise with deep retracements. Hence the emphasis now comes to 6225 and should that be taken out on closing basis [and more importantly 6280] then it is advantage bulls all the way.

I have always been an advocate of learning where analysis went wrong and also acknowledging my mistakes with the reasons and price levels. I was looking at shorting the rallies in Sep '13 with SL at 5740 and got stopped out [the twitter updates confirmed that as soon as it happened] Now people 'itching' to short still need to wait for prices to close below 5740 before initiating fresh shorts.

The critical Gann dates almost always bring large price swings in the 2 weeks around those dates. Yesterday was Fall Equinox. So lots of volatile price action expected in either direction. In fact these are good times from a trading perspective. It would be very prudent right now to build the following straddles

Oct 6200 Call with Oct 5800 Puts [or Nov 6300 Call with Nov 5700 Put] in ratio 1:1. Target exit points are +250 points from CMP or -250 points from CMP that will ensure that the gains remain 50 points per lot on the entire spread. SL would be when the combined premiums fall below 50% of premiums paid. Time frame: 8 to 10 trading sessions.

Uni-lateral positions [i.e. only long or only short] should be taken only after prices take out crucial levels. Closing above 6225, longs have higher risk reward outlook. Closing below 5740, shorts have higher risk reward outlook. Enjoy the volatility first on account of Nifty expiry and then on account of post-equinox effects!

RBI Meet on 20th September - What To Expect - Desi QE Episode 1

So Uncle Ben decided to leave the QE untouched for now. Not the unexpected as I had warned in my outlook earlier this month i.e. US will continue with QE for as long as possible - period. Whilst many may argue for / against etc etc - markets have their own ways to make out what they want.

In a knee-jerk reaction, we may have global indices, commodities going on a roll leaving bears puzzled. As far as Nifty is concerned, the technicals remain unchanged as far as fundamentals are concerned, it is a different story all together.

Desi QE specialist, Raghuram Rajan holds his 1st RBI conference on 20th September and let us analyze what to expect. His debut was celebrated in style and his bold initiatives cheered. Inflation has shot up big time though currency stabilized by about 350 basis points. Now comes the Catch 22 situation from an Indian perspective.

Whilst the growth story demands that rates be cut, the latest developments make that a difficult option to take. Let us not forget that this meet is not just about interest rate decisions and CRR decisions but also about the guidance for the RBI. With new banking licenses set to be doled out and forex risks to be mitigated, the mainstream press and punters will be waiting with baited breath to take on senor Raghuram

Interest Rates: A rate cut is highly unlikely given the inflationary outlook and global liquidity. Thanks to US Fed, for now that part can wait

CRR: Expect a 25 basis points to 50 basis points cut in CRR to indirectly inject some liquidity

Currency Swaps: It will be interesting to see what is the guidance on this front. So far RBI has only announced swap measures with regards to USD-INR flows for the banks and OMCs. Luckily, Japan voluntarily came in and tripled the INR-JPY swap window to the tune of USD 50 billion equivalent this month (Point to note: Japan took lead in this step and not India!)

To save the rupee along with other EM currencies, it is very critical to have more partners on board for similar currency swap windows. With the recently concluded G-20 summit and BRICS discussion, it is very critical that at least with major trade partners like China, Thailand, Malaysia, Indonesia, South Africa, Russia etc to have INR-XYZ currency swaps that will be win-win situations on both sides. Unfortunately, it is highly unlikely as our central bankers seem to be happy with the fact that Iran accepts INR payments.

Moreover, politicians' vested interests lie in as many dollar transactions as possible!

Banking Licenses: This is one of the most absurd decisions seen ever. Rather than recapitalizing existing banks and moving towards consolidation (that will reduce a lot of fixed expenses and bring economies of scale) new banking licenses seem to be the flavor of the season.

Forward Guidance: Will be hawkish short-term and dovish long-term

As of now, the markets seem to have priced in a rate cut, CRR cut of about 50 bps. No QE tapering for now will keep rupee stable. So the upside on BankNifty maybe capped around the 10800-11000 mark.

3 major events were expected to rock the markets this week
1. US Fed Meeting: Uncle Ben gave markets reasons to celebrate
2. RBI Meet: Raghuram maybe hawkish and still get away with it for now
3. German Elections: Time will tell and as I have been repeatedly saying, this will be a potential game changer for global markets.

An interesting pair trade prior to RBI meet
Build a BankNifty Straddle with Oct 11200 Call and Oct 10200 Put with a combined cost of entry of about 250 per lot. Target Exit Points are 11000 or 10400 where in the pair will almost double. Keep a Stop Loss of 125 on combined value of the put and call.

Premium Invested: Apprx 250 x 25 = 6250
Maximum Loss: 125 x 25 = 3125
Potential Gain: 250 x 25 = 6250

Enjoy the new Desi QE version Episode 1